Apple

Is the game theory defection dump of the world's biggest hedge fund hotel starting? In a just released 13F filing, Ken Heebner's Capital Growth Management has disclosed that he has reduced his holdings in Apple almost to zero. After holding 1.15 million AAPL shares as of June 30 (which made him holder #100 in the name sorted by size), Ken Heebner who is a regular guest on CNBC courtesy of his bullish tendencies, sold virtually his entire stake, leaving him with just 111,000 shares. One can only speculate about the causes, although it is notable that the last time Heebner did a comparable dump was in late 2008, when after the Lehman bankruptcy he liquidated half his million share stake. Is Heebner sensing something comparable to what happened in late 2008 on the horizon? Or was he satisfying margin calls? Or, most innocently, did he just sell what is probably his most profitable position, "just because" - inquiring minds want to know. We will keep an eye out on who else dumped Apple as the barrage of Q3 13F issuance begins today and ends on Monday.

The fact that robots are POMO juicing AAPL's shares and Google also has grand designs on the mobile/smart phone space, shouldn't detract from one simple fact, Apple designs and manufactures great products many of which happen to be game changers.

Who would have thought that Burrito Bowls and Red Envelopes would be hotter than the I-pad in 2010? Sounds crazy but it’s true. By looking at the YTD performance chart from Yahoo! Finance you can see that the stocks for Chipotle Mexican Grill (NYSE:CMG) and Netflix (NASDAQ:NFLX) have significantly outpaced Apple Inc.’s (NASDAQ:AAPL) stock price so far this year.

From Apple's 10-K: "The Company expects its gross margin percentage to decrease in future periods compared to levels achieved during 2010 and anticipates gross margin levels of about 36% in the first quarter of 2011. This expected decline is largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases."

Increased Competition begets more pressure on margins. It's simple business 101. But "Apple's margin pressure came from growth so rapid that they couldn't source the components fast enough" you say. I say you should just take a closer look at that story before you go around repeating it... Maybe the Android will listen to it?

Today's attempt to ramp Apple into the green no matter what (and with 20% of the NASDAQ, and thousands of ETFs creating a massive feedback loop, bidding up Apple generates the biggest bang for the buck), which, if unsuccessful, will see dozens if not more funds scream at EOD once the margin calls start rolling in (yes, many are "all in"), has resulted in yet another complete collapse in all correlations. Note the simply ridiculous divergence between the AUDJPY and the ES. This is all on account of the glaring ramp undertaken by virtually everyone whose livelihood depends on the aforementioned AAPL green close. We would argue that a long AUDJPY, short ES trade makes sense, but with the market as broken as it is, only idiots would hope for anything to make sense any more.

The latest on Apple's earnings that went far in corroborating what I've been preaching for months to a bunch of crazed, excitable Apple fanatics who simply refused to see facts for what they were. Its called compression!

150 funds are responsible for $177 billion worth of Apple's market cap. The question now is who, among the 150 below, in tried and true and neverfailing "game theory" will be the first to defect and bail, starting an avalanche in the price of the fad-focused retailer.

Apple is halted as it beats top and bottom line: Q4 revenue USD 20.34BN vs. Exp. USD 18.90BN, Q4 EPS USD 4.64 vs. Exp. USD 4.10. Margins come weak, but that does not stop Steve Jobs from proclaiming: “We are blown away to report over $20 billion in revenue and over $4 billion in after-tax earnings—both all-time records for Apple.” Looks like ES is certainly not as impressed as the gaunt CEO, as the company undersells iPad by a big margin: Q4 iPads units sold 4.19mln vs. Exp. 4.81mln.

Today's POMO closed and it was a whopper, coming far higher than expected, at $4.690 billion. Oddly enough, this was a minute 3.2 Submitted to Accepted ratio, indicating that even with everyone and their grandmother buying the belly, very few are willing to still put it to the Fed, which simply means that most PDs are waiting for far higher prices at which to sell the Fed's fat back to it. Worse: the market seems to think that even $4.7 billion worth of free money leveraged 30 times is insufficient to get the S&P back to the green (although the day is still young - with volume starting to drop, here comes the HFT permabid scalpcrew).

Must read commentary by BigMacro & Co.'s Daniel Somos on how "Apple is really taking over the world" which confirm why the entire market can be summarized by the following equation: APPLE = STOCKS = AUDUSD = GOLD.

There goes the markets for a day, or two, or seven hundred and twenty, or however long it will take for rational and sane investors to trust these markets, ever again.

The flash crashes will continue until market confidence returns (this is the second one in Apple today). Who is even trading this insanity anymore? This entire market is about to break hard: any piece of bad news can topple Apple like a house of cards, and that, as we noted earlier, will take the entire market with it. Oh yes, this is supposedly the second most liquid name in the market!

We hope Brian Sack at least hands out a free Kindle, iPad, and DVD rental to all US taxpayers, after all it was all their money that just got these stocks back to unchanged, and prevented a rout in the Nasdaq, nearly 25% of which is determined by just these three stocks (AAPL, AMZN and NFLX). Your taxpayer money in use. And now the question is who frontruns the other frontrunners in taking profits ahead of the next POMO on Thursday.

The company that determines the market, AAPL, by accounting for 20% of Nasdaq weighing, just gave the nearly 200 hedge fund managers who own it a heart attack. While the early swoon in the stock by $15 is not (yet) attributed to some fat finger, or flash crash, the move wiped out billions in market cap. The reason, according to FOTW, is that the COO may move to HPQ (up 2% on the day), or some such narrative which seeks to explain why the world's most overvalued company may dare to have a down day. Either way, this has now solidly broken the +/- 2 std dev upchannel seen for pretty much one full month. The entire market is now down as a result of one stock being responsible for overall direction and momentum. The issue is that who knows how many HFTs are now underwater on their daily cost averaging in the name, which may potentially spark a material selloff. Watch for comparable action in the four horsemen of the tech apocalypse: AMZN, NFLX and BIDU.