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Apple Encounters Gravity As 3rd Biggest Drop In 3 Months Drags Market Down

Tyler Durden's picture




 

While not quite as impressive as the 02/15 sell-off in terms of volume or size, today's weakness in Apple's stock price was the 3rd largest drop in 3 months as we note implied vol pushed up once again mimicking the pattern from mid-Feb as the stock lost over $21.5 from high to low in a very flash-crash style around 1110ET. As both realized volatility and implied volatility increase, perhaps some of the 200+ hedge funds will allocate some risk budget away from the Apple or change mandates so that their bogeys are AAPL. Apple's weakness weighed on most other high-beta assets with High yield credit lower and only Utilities and Staples managing a positive close among S&P sectors (financials were mixed in stocks but CDS were wider). Somewhat interestingly, Treasuries sold off all day and modestly steepened and while FX markets drifted very modestly higher for the USD after the European close (despite some overnight JPY strength - risk-off), ES (the e-mini S&P futures contract) synced back with an underperforming CONTEXT (broad risk asset proxy) into the close as WTI regained $107 (along with strength in commodities) and AUDJPY improvement.

 

AAPL was leaking lower off a solid open broadly in sync with European market weakness (with some support at Friday's VWAP - blue horizontal line) but as soon as it crossed Thursday's closing VWAP (yellow line), the sell-off accelerated and had the look and feel of a flash crash given the volume surge and size of the move.

The machines managed to creep the price back up to today's VWAP (red line and arrow) but from there it sold off and dragged the broad market with it and still managed one of its bigger drops.

 

Comparing the very recent acceleration in AAPL's stock price (black) with its equity option implied vol shows three main things. 1) from the mid Q3 sell-off and initial rally at Thanksgiving, implied vol and stock price have moved inversely as we would expect; 2) at the start of the year, its clear managers sought protection and bid up volatility (the first green box) as we see AAPL stock rise and so does vol. This seemed to provide the ammunition for the significant sell-off mid-Feb (on NASDAQ re-weighting rumors) to bounce back, as protection owners covered and the lower vol, higher price relationship reset to take us to new highs - which leads us to the last week or two; 3) a similar protection buying binge into the AAPL rally has occurred but this time on a much smaller scale than previously - which means there is significantly less ammo (shorts forced to cover/take profits) if we manage a rally off these levels.

Broadly speaking, risk assets stayed in sync with US equities today aside from early downward pressure (that was absorbed) when JPY strength forced CONTEXT lower as carry FX drivers dragged it down. By the afternoon, stocks and broad risk assets (despite TSY weakness - which was outweighed by the 2s10s30s carry driver) were back in sync and close that way.

Charts: Bloomberg

 

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Mon, 03/05/2012 - 17:37 | 2225725 LawsofPhysics
LawsofPhysics's picture

Ah, my profits...

Mon, 03/05/2012 - 17:42 | 2225754 CClarity
CClarity's picture

Hedge funds had to book some profits to justify their fees.  Especially since they lag the overall indices so far this year.  Easiest quick grab was some APPL.

Mon, 03/05/2012 - 17:45 | 2225775 Lost Wages
Lost Wages's picture

Yep, the first ones they sell are always the blue chip stocks that are ahead. Thank goodness for a public that always buys into the rallies.

Mon, 03/05/2012 - 18:00 | 2225852 max2205
max2205's picture

Shadow market on AAPL is getting a wider spread. What's 3% between hedge friends?

Mon, 03/05/2012 - 18:44 | 2225984 redpill
redpill's picture

Sorry guys, it was my top call the other day. The robots must read ZH now...

 

Mon, 03/05/2012 - 20:34 | 2226266 dlmaniac
dlmaniac's picture

I guess Israelis CB forgot to bid today.

Mon, 03/05/2012 - 22:50 | 2226691 hyper-critical
hyper-critical's picture

I've gotta throw something out there about '12 hedge fund performance. The benchmarks people cite are mired with compositional issues, and even if they weren't, 'average' performance is hardly representative of how the real big boys and smarter players are doing YTD. Aggregation of data across strategies, survivorship/listing bias, etc make it difficult to get a true gauge of 'average' fund performance.

I have no interest in defending the industry or anyone in it - many are fucking idiots and/or sociopaths destined to bring about early retirement for themselves and foodstamps for their families sooner or later. But I want to bring it up because though Apple's broad ownership is an interesting and important piece of market information, I think it's far from certain that at some critical point in time or price hedge funds are going to try to dump it all at once into a bidless market. Definitely possible, but I don't think we're quite there yet.

Having said that, I do think the Nasdaq 100 is about to take a huge dump, and like many people here, am more and more of the opinion that we might wake up in 2 weeks to levels at least 10% below where we currently stand (and that's in nominal terms...fuck).

Happy to bleed a little theta until then...

Mon, 03/05/2012 - 18:10 | 2225888 ZippyBananaPants
ZippyBananaPants's picture

This basically went unnoticed by the world as they are busy talking about some SLUT!

The media is keeping us in front of the stories that matter!!

 

Mon, 03/05/2012 - 19:54 | 2226180 Rainman
Rainman's picture

+ 100 free condoms

Mon, 03/05/2012 - 20:15 | 2226220 Dermasolarapate...
Dermasolarapaterraphatrima's picture

Remember when Lucent plunged from about $80 to $4......??

They can have their AAPL but better not eat too much.

 

Mon, 03/05/2012 - 17:38 | 2225731 The trend is yo...
The trend is your friend's picture

Don't worry Israel is on the bid.  BTFD

Mon, 03/05/2012 - 17:59 | 2225846 john39
john39's picture

pretty transparent... pick some of the biggest stocks to bid up... and thereby inflate the indexes and give the impression that all is well.   more fraud, what a surprise.

Mon, 03/05/2012 - 17:38 | 2225733 YesWeKahn
YesWeKahn's picture

QQQ touched 65, never seen since 2011.

Mon, 03/05/2012 - 17:42 | 2225759 Narrow Ledge
Narrow Ledge's picture

Hat tip to hedge fund guy @tommythornton on twitter posts all the  time crazy index attribution with AAPL -  type on Bloomberg NDX INDEX MOV GO - change start date back to 1/3/12 and I have for fun gone further back Oct 3rd 2011, go back to 3/6/09 or 10/18/07.  Takes a little while to run (maybe 1 min)

Check out the breadth from those dates and points AAPL has contributed to the NDX.  AAPL has averaged 30%+ each year from 06 to the NDX by itself.  Thats 1/100 stocks doing 30% of the work.  Insane

Mon, 03/05/2012 - 17:42 | 2225760 Lost Wages
Lost Wages's picture

Apple buyers everywhere screaming out for Israel.

Mon, 03/05/2012 - 17:45 | 2225780 taniquetil
taniquetil's picture

A QID a day. Keeps Apple's losses at bay

Mon, 03/05/2012 - 18:15 | 2225900 Zero Govt
Zero Govt's picture

Oh no, Reggie will be wheeling out his Apple chart in 2 minutes before the opportunity fades ..he only gets 2 quick shots a year at the Apple share price!!

Mon, 03/05/2012 - 18:27 | 2225942 earleflorida
earleflorida's picture

china's 8% growth to 7.5% could, in all reality, be masking a wee-bit more of a shock as seen on the nervous face of its announcment. this doesn't bode well for apple. i'm willing to  say with cautious pessimism mixed with a sprinkle of hopium that apple is going down at minimum 7%-10%. all i can think of is the south korean syndrome, when qualcomm was hit hard by sub-par growth,... and china ain't no south korea

Ps. to many eggs in one basket

jmo

Mon, 03/05/2012 - 18:57 | 2226023 walküre
walküre's picture

iTulips

Mon, 03/05/2012 - 19:00 | 2226035 Tsar Pointless
Tsar Pointless's picture

Is this an ominous sign, here, on the eve of *the* aniversay of 666 S&P "bottom" of three years ago?

Or, is it just another opportunity to "buy the f'n dip"?

These questions and many others will be answered on the next episode of, "Soap".

Do-do-do do-do, do-do-do-do.

Mon, 03/05/2012 - 19:53 | 2226179 chintito
chintito's picture

Fear not, the iPad 4 that comes with a certified swipe stain from Steve Jobs' temporal will answer these infidels.

Mon, 03/05/2012 - 20:06 | 2226200 Zeff
Zeff's picture

iBear

Mon, 03/05/2012 - 21:43 | 2226507 chump666
chump666's picture

Asia is selling.

Mon, 03/05/2012 - 21:46 | 2226518 MFL8240
MFL8240's picture

Remember AOL, DELL Computer, HP and Microsoft?  ...well, this company is next for the ash piles.  They offer nothing that u cannot buy elsewhere.  While I think they have good products, they are just that "good products" nothing more.

Mon, 03/05/2012 - 22:01 | 2226568 wee-weed up
wee-weed up's picture

Oh give me a friggin' break! The stock came within less than a dollar of it's 52-week high, and ended the day down only 2.2%! Big drop? Pul-eeze! Yawn...

Tue, 03/06/2012 - 09:26 | 2227487 SAT 800
SAT 800's picture

Well, only in retrospect, of course; but coming to essentially the 52 week high, and not challenging that number could be a double top; double tops are very powerful signals. And, that said, triple tops are even more powerful. A bearish signal, a signal of a reversal, is what I mean.

Mon, 03/05/2012 - 22:58 | 2226720 hyper-critical
hyper-critical's picture

Tyler - really refreshing take on the relationship between implied vol and price. Maybe not refreshing for most, but I hadn't thought about IV like that around potential inflection points...makes a lot of sense.

Tue, 03/06/2012 - 09:22 | 2227484 SAT 800
SAT 800's picture

Yes; agreed. It's interesting.

Tue, 03/06/2012 - 01:52 | 2227098 cnhedge
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