Apple stock panic labeled "a premeditated flash dump"

Posted:
in AAPL Investors edited January 2014
While pundits have taken it upon themselves to explain that investors were "disappointed" with Apple after it delivered its results last week, evidence points to "a premeditated flash dump" enable by high frequency trading algorithms.

A report by Philip Elmer-DeWitt, writing for Fortune, cited a blog entry by trading insider 'Tyler Durden,' which noted Nanex charts (one shown below) indicating trades of 800,000 Apple shares worth almost $300 million executed in 17 second intervals.

"In this case," the trader noted, "it looks like a very premeditated unloading" of Apple stock "in the last second, with the full knowledge it would shake the market. Why anyone would want (or wait until the very last second) to do that, while covering the offsetting ES short in the pair trade, to ramp the market into the close, is anyone's guess."



A variety of financial bloggers have offered an alternative explanation for Apple's decline, suggesting that investors collectively believe the company has run out of growth prospects. They point to the company's ostensibly flat quarterly earnings, as reported in comparison to the quarterly income statements from last year.

An apples and oranges comparison of quarters

However, Apple's earnings for the winter quarter of 2012, as Apple's executives have repeated called attention to before, both during and after last year's earnings, involved an extra, 14th week. This extra week is added to Apple's fourth calendar quarter (Apple's fiscal Q1) every five or six years.

Subsequently, as explained by Robert Paul Leitao in "The Mysterious Case of Apple's Missing Growth," this year's quarterly report effectively hid billions in new revenue relative to the previous year's quarter.

"On a weekly basis," Leitao wrote, "Apple's revenue was $4.2 billion in the recent December quarter versus $3.3 billion in the prior-year period. On an equal week basis, revenue in the quarter rose 26.7%."

The report added, "most observers look to the income statement to determine the company's growth. However, Apple's balance sheet that accompanied the December quarter revenue and earnings numbers tells a much different story. It's not so much that Apple's rates of growth have declined, it's an issue of discovering where the current rates of growth are reported."

More invisible billions within Apple

Leitao drew attention to Apple's sizable $132 billion cash pile, on top of the $2.5 billion distribution to shareholders and $2 billion allocated to the company's stock buyback plan.

But he also drew attention to other billions that aren't always considered by investors looking at Apple's operations. Apple continues to defer revenue for Mac and iOS devices it has sold in order to provide free software updates over the course of those products.

At the end of 2012, "Apple's deferred revenue balance totaled $7.274 billion," Leitao noted. "Most of this deferred revenue balance will be recognized as net sales over the next eight fiscal quarters."

Apple also declares US tax expenses on its cash holdings in advance, even though it doesn't have to pay those taxes until it chooses to bring those earnings into the US. "In the December quarter, Apple deferred $1.179 billion in income tax expense," resulting in a total of $14.712 billion in tax expenses that Apple has preallocated, but not actually paid.

"Should a sizable portion of these dollars be repatriated," Leitao stated, "it would not trigger additional tax expense. It would trigger the payment of taxes already recognized as tax expense in past quarterly periods."

He concluded, "The balance sheet will tell a different story than the quarterly income statements for the first half of the current fiscal year. As gross margin improves over the next few quarters and Apple aligns supply with continuing product demand, Apple's underlying rates of growth in FY2013 will become more clear."
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Comments

  • Reply 1 of 68


    They'll be regretting it long before the end of 2014.


     


    I'll be interested in seeing what the other big players offer up in the same time frame.

  • Reply 2 of 68
    Another attempt to pump people about Apple's stock.

    When wall street want the stock to go up, it will.
  • Reply 3 of 68
    blackbookblackbook Posts: 1,361member
    I'm not a market genius but that sounds like stock manipulation to me.
  • Reply 4 of 68
    macxpressmacxpress Posts: 5,138member
    It seems like this would be illegal if you ask me.
  • Reply 5 of 68

    An extremely questionable "coincidence" was posted by the Wall Street Journal - I speculate this is the real reason WHY the Dump of Apple stock happened the last second -

    Big brokerages were selling "Apple Bonds". If the price TANKED then bondholders, who were giving a 10% return supposedly, would instead be paid with Apple shares .. i understand based on the price you paid at the time you purchased the Apple Bond. Net result - if the dumping party could cause the stock to tank the very last second so it could not pop up before close (which is what happened), then Brokerages issuing the Apple Bonds make what, 10s or hundreds of millions? A big brokerage person tried to sell me this .. I vaguely listened at the time... how many "conservative" big brokerage customers thought they were safe rather than buying the stock??? The stock will bounce big time. I think this whole crash this week was driven by brokerages - big guys - with these crazy instruments .. standing to make tens / hundreds of millions if they could cause the stock to crash until last Friday.

    Here is the link to the WSJ:
    http://online.wsj.com/article/SB10001424127887323854904578263941939124314.html
  • Reply 6 of 68
    Whatever the reason (most likely automated trading software getting "sell" signals), Apple is now in a prime position to initiate their buyback program.

    Maybe Samsung is behind the whole thing... :D
  • Reply 7 of 68


    I suspect that Samsung was happy.


     


    However, this I believe relates to that Apple Bond HUGE RIP-OFF among the bondholders.


     


    This is a replay of Madoff behavior.  Old /Conservative investors take the stretch... like the con-job from their brokerage saying this is secure way to invest in Apple ... someone actually said that to me around when we were in high 600s I recollect. 


     


    If it is too good to believe- it is.


     


    I say .. suspicious big time .. last second dump makes how much for the issuers of that bond?   Wall Street Journal nailed it - I would love to know how many hundresds of millions were put into those bonds by naive investors - and how much was made because of this "flash crash" "accident" "allogrithym) ??? really .. .a machine did it ... or some entity standing to make how much by the last second dump of shares???

  • Reply 8 of 68
    ifij775ifij775 Posts: 470member
    The only upside to any of this is Apple buying back their stock cheap.
  • Reply 9 of 68

    Quote:

    Originally Posted by nyuestateplanninglawyer View Post





    An extremely questionable "coincidence" was posted by the Wall Street Journal - I speculate this is the real reason WHY the Dump of Apple stock happened the last second -



    Big brokerages were selling "Apple Bonds". If the price TANKED then bondholders, who were giving a 10% return supposedly, would instead be paid with Apple shares .. i understand based on the price you paid at the time you purchased the Apple Bond. Net result - if the dumping party could cause the stock to tank the very last second so it could not pop up before close (which is what happened), then Brokerages issuing the Apple Bonds make what, 10s or hundreds of millions? A big brokerage person tried to sell me this .. I vaguely listened at the time... how many "conservative" big brokerage customers thought they were safe rather than buying the stock??? The stock will bounce big time. I think this whole crash this week was driven by brokerages - big guys - with these crazy instruments .. standing to make tens / hundreds of millions if they could cause the stock to crash until last Friday.



    Here is the link to the WSJ:

    http://online.wsj.com/article/SB10001424127887323854904578263941939124314.html


    This is a very intriguing point....


     


    I truly wish the SEC would look into this.

  • Reply 10 of 68

    Quote:

    Originally Posted by nyuestateplanninglawyer View Post 


    I would love to know how many hundresds of millions were put into those bonds by naive investors ......


    I don't know if they're 'naive' or not, but according to the WSJ article, $700M+..... an amount that would, as marginal trades, be more than sufficient to roil the daily market price in a stock such as AAPL.


     


    Is the SEC required to investigate if an individual investor lodges a complaint? Anyone know?

  • Reply 11 of 68
    tylerk36tylerk36 Posts: 1,037member


    Wonder.  The largest holders of those shares being Korean?

  • Reply 12 of 68
    drblankdrblank Posts: 3,383member

    Quote:

    Originally Posted by blackbook View Post



    I'm not a market genius but that sounds like stock manipulation to me.


    Of course it's stock manipulation.  They really downplayed the fact that they are paying dividends now whereas they weren't a year ago.  I think they have one or more quarters with dividends being paid compared to not.


     


    In defense of Apple, they have the demand, it's just a supply issue and it takes them a couple of quarters to roll their products out and we don't know what the REAL demand of each product is for at least 3 to 6 months after each product has rolled out completely and there is at least one or two full quarters of sales metrics.


     


    I think Apple should not wait until all at once to roll out there products.  The reasons?  One, it confuses the customers with too much information as only certain products will get the attention that there is a new product version.  Secondly, it's hard to get the production levels up, especially if there are yield issues or vendor production issues that need to worked out, especially with new components like screens and processors.  The rest of the components should be fairly easy to make with high yield rates if they are basically pre-existing components like RAM, SSD, etc.


     


    I also think that Apple would have WOWED the industry with two different screen sizes.  One that is 4 inch and the other that is larger, a la 4.5 inch for the people that do want a larger screen.  Even though most probably want a 4inch screen, there is, I believe, a decent amount that would prefer larger.  So give people more choices.


     


    I hate to admit, but the LIghtning connector was not well received.  Micro USB would have been better received, but that's a decision Apple went with right, wrong, indifferent.


     


    I think Apple should separate out the product roll outs and make them available when the product is ready to ship.


     


    Obviously, switching away from Samsung was thrown in for extra added complications.


     


    The Maps issue could have been avoided if they spent another 6 months in testing and just kept quiet on it and brought some other features to iOS instead.


     


    Looking forward, this stock is DIRT CHEAP. The demand is there, they have more products in the pipeline, and they are increasing, but the supply of products limited their growth last quarter.  I can see HUGE growth when they sign China Mobile, and when/if they make some BIG announcement in the AppleTV product line in the way of HDTVs as they need some new product line.

  • Reply 13 of 68
    drblankdrblank Posts: 3,383member


    Looking at comparisons, Microsoft is trading at a P/E of 15, which is about right.  Google is trading at P/E of 22, which is a little overvalued.  Apple is trading at P/E of 9+.  HELLO, McFly!!!!!  Bueller? Bueller?  Anyone? Anyone?


     


    Apple, should be trading at around 15.  But I'm sure it will get back up to that level when some MAJOR announcements are made.

  • Reply 14 of 68
    philboogiephilboogie Posts: 7,671member
    Just trying out to post a readable image of the small one that AI has posted in the article
    [IMG ALT=""]http://forums.appleinsider.com/content/type/61/id/19749/width/500/height/1000[/IMG]

    Welp, also looks crap. But with good eye sight one can read it by clicking on it, as opposed to the one in the article.

    The original is even bigger @1200*800 ([URL=http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/01/AAPL 1.gif]external link[/URL])

    And if you don't want to look at the graph; it's showing the decline on 1/25 right before 16.00.
  • Reply 15 of 68
    apple ][apple ][ Posts: 9,233member


    I'm not surprised. There's a lot of BS and manipulation taking place. AAPL is huge, and is bound to attract all sorts of shady characters.


     


    Having said that, I think that any investor in Apple (not the big firms and the crooks, but the average small time investor), selling their shares of AAPL now is dumb.

  • Reply 16 of 68
    Probably Samroid made the trades
  • Reply 17 of 68
    macrulezmacrulez Posts: 2,455member


    deleted

  • Reply 18 of 68
    Samsung is kicking the crap out of Apple and Wall Street is happy Apple is finally getting beaten to the ground for charging insanely high prices for its products. Wall Street hates companies that sell costly, high-quality products. WS wants all products sold to be cheap and pumped out at high volume to flood the market. That's the best way to make huge gains quarter to quarter. That type of cheap product always shows growth potential in a way Apple products never could.

    WS is trying to force Apple to play by the rules by punishing the stock for slowing growth even though the company is making a decent amount of money. That's why they keep saying Apple should build cheap products to compete with everyone else in a race to the bottom of profit margins. Hopefully, Apple won't give in, but Apple shareholders would like to see some returns, somehow. I think Apple should acquire some additional revenue stream outside of hardware, so they can continue to build high-quality products and yet increase their revenue stream.

    Anyway, Apple has fallen out of WS's favor and that's the way the cookie crumbles. Most investors don't care because every other company's shareholders are making money and the stock market is nearly at an all-time high. It's only Apple shareholders who are big losers and they're just getting what they deserve for their supposedly snooty arrogance of Apple selling expensive products to other snobs. I think that's what Jim Cramer said. I'm hanging onto my Apple stock because it may just go back up a $100 or so in another six months and in the meantime I'll be getting my dividends.
  • Reply 19 of 68
    philboogiephilboogie Posts: 7,671member
    macrulez wrote: »
    Summary:

    One blogger offers random speculation so wild not even he himself can explain it. 
    The rest of the world thinks it's just investors adjusting expectations.
    Digler's going with the random speculation.

    So what you're saying? DED on arrival? (Lame, I know. It's late where I am...)
  • Reply 20 of 68
    tkell31tkell31 Posts: 216member
    Isnt the real issue Apple's forecasts for next quarter? 4-8% revenue growth is kind of shockingly low considering the last two second quarters were 83% and 60% respectively. Obviously no one expects that kind of growth for long, but 4-8? Throw in a drop in margins from 47% to 38% and it's shaping up like a significant EPS drop which would be the first in years no?

    I have yet to read why 3rd and 4th quarters will be better. I understand they might be if a low cost phone is introduced or margins expand as costs for a new product drop, but absent that wouldnt it be logical to apply 2nd quarters projections to the two historically weakest quarters of the year?
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