Short sellers 'mugged' Apple stock in late April

Posted:
in AAPL Investors edited January 2014
Shares of Apple stock were bludgeoned down to their lowest price in over a year in April, thanks in part to an assault by short sellers who took a record interest in the company late in the month.

AAPL


Short interest in Apple doubled to a record 41.6 million shares between April 15 and April 30, Philip Elmer-Dewitt of Apple 2.0 revealed on Tuesday. In his words, shares of Apple were "mugged" by short sellers, who drove the price of AAPL stock to its lowest level in over a year.

Ahead of its second-quarter earnings report, shares of AAPL dropped to just over $385, a level not seen since 2011. Apple's stock began its tumble in September of 2012, around the launch of the iPhone 5.

Many investors believe Apple put a floor under its share price in April when it announced a massive $100 billion capital return program that will run through 2015. That includes an increase of Apple's quarterly dividend by 15 percent, and a $60 billion share repurchase plan, which is the largest in history.

In particular, Apple's capital reinvestment plans have won over Greenlight Capital Chairman David Einhorn, who made waves earlier this year when he attempted to persuade the company to offer preferred shares. Also bullish on Apple is billionaire Alisher Usmanov, who recently bought about $100 million in stock.

Since then, short interest in Apple has cooled off. Dewitt noted that by May 15, it had fallen nearly 38 percent to to 26 million shares.

As of Tuesday morning, shares of AAPL were trading above $440, still well below the company's 52-week high of $705.07, but above its low of $385.10 in late April.
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Comments

  • Reply 1 of 73
    This is an outrage! I knew something like this was happening.
  • Reply 2 of 73
    anantksundaramanantksundaram Posts: 20,403member


    Big deal. It can work both ways. Short sellers getting squeezed (and therefore being forced to buy to cover) are, on the other hand, believed to be responsible for a large part of Tesla's remarkable share price run-up (see, e.g., http://bloom.bg/12tGflk).


     


    The bottom line with AAPL currently is blah sentiment. Unless that changes, it'll be a back and forth in the $400s. Nothing much can change that except for real news.


     


    As I've said before, it's a bleak summer for AAPL (and AI, which is forced to cover Samsung's every move).

  • Reply 3 of 73
    macfandavemacfandave Posts: 603member
    Stock manipulation is illegal. People who have spread lies about companies to drive their stock prices one way or the other (mostly down) have rightfully gone to jail for this. Why aren't regulators doing anything about the obvious campaigns of lies and smears against Apple?

    I guess the Rule of Law isn't what it used to be.
  • Reply 4 of 73
    irelandireland Posts: 17,798member
    New laws.
  • Reply 5 of 73
    lkrupplkrupp Posts: 10,557member

    Quote:

    Originally Posted by anantksundaram View Post


    Big deal. It can work both ways. Short sellers getting squeezed (and therefore being forced to buy to cover) are, on the other hand, believed to be responsible for a large part of Tesla's remarkable share price run-up (see, e.g., http://bloom.bg/12tGflk).


     


    The bottom line with AAPL currently is blah sentiment. Unless that changes, it'll be a back and forth in the $400s. Nothing much can change that except for real news.



     


    Which means, bottom line, that stock prices CAN be manipulated by large investors like hedge funds. It means the small or individual investor is at the mercy of these thugs, and it's all nice and legal. No wonder burying your money in a tin can in the back yard sounds good to some people.

  • Reply 6 of 73
    anantksundaramanantksundaram Posts: 20,403member

    Quote:

    Originally Posted by Ireland View Post



    New laws.


     


    Quote:

    Originally Posted by macFanDave View Post



    Stock manipulation is illegal. People who have spread lies about companies to drive their stock prices one way or the other (mostly down) have rightfully gone to jail for this. Why aren't regulators doing anything about the obvious campaigns of lies and smears against Apple?



    I guess the Rule of Law isn't what it used to be.


    There is no rule that says that asset prices must only go up and you must only be 'long' an asset. It's perfectly reasonable and legal to bet on, and profit from, falling prices if you think that an asset is overvalued.


     


    If we got rid of short-selling, we'd run the risk of being in endless asset bubbles. We'd also then have to get rid of put options (and by inference, all kinds of portfolio insurance).


     


    I am not suggesting that AAPL is remotely overvalued -- in fact, I personally beleive it's terribly undervalued, and choose to put my $$ on the long side -- but rather, just pointing out the fact that short sales help make a market efficient and keeps prices from running wild.

  • Reply 7 of 73
    dsectdsect Posts: 25member


    Isn't it time they moved the stock exchange to Las Vegas where it belongs?

  • Reply 8 of 73
    anantksundaramanantksundaram Posts: 20,403member

    Quote:

    Originally Posted by lkrupp View Post


     


    Which means, bottom line, that stock prices CAN be manipulated by large investors like hedge funds. It means the small or individual investor is at the mercy of these thugs, and it's all nice and legal. No wonder burying your money in a tin can in the back yard sounds good to some people.



    No, you're wrong. There is absolutely no necessary implication of 'manipulation' just because TSLA went up. This is simply the case of demand for a stock driving up its price. The reason for the demand, in this case, is those on the short side seeking to cover their short sale -- they will have lost their shirt (and then some), in the process of doing this.


     


    If you -- or the market -- think TSLA is too high-priced (because it's being 'manipulated'), then you can put your money where your expectation is, and buy put options (or do a short sale)!


     


    It is simply a bet that prices would fall, and when that bet goes awry, these guys had to purchase the stock at any price to cover their a$$e$.

  • Reply 9 of 73
    chabigchabig Posts: 641member

    Quote:

    Originally Posted by dsect View Post


    Isn't it time they moved the stock exchange to Las Vegas where it belongs?



    If you go to Vegas and play the games without learning them first, you lose. It's the same with finance. You should learn what to do before you jump in.

  • Reply 10 of 73
    Oh please. AAPL is the biggest, most liquid stock in the world. It trades 20M shares every day. Going from 20M to 40M shares short over the course of a month isn't even a blip; that did not and could not drive the price down 45%.

    AAPL went down b/c earnings estimates were way too high, mainly due to gross margins but also to number of units. Analysts got ahead of themselves. Now maybe they've gotten too bearish, but time will tell.

    Also, remember that for every short sell transaction, there is a BUYER on the other side of the transaction. One other thing to note. ALL short sellers have an obligation to buy in the future. This often puts a floor under a stock when other buyers are reticent to step in and "catch a falling knife". People who want to change the laws learn the hard way that volatility massively increases, just the opposite of the desired result.

  • Reply 11 of 73
    newbeenewbee Posts: 2,055member
    Quote:
    Originally Posted by chabig View Post

    If you go to Vegas and play the games without learning them first, you lose. It's the same with finance. You should learn what to do before you jump in.

     

    The big difference, however, is that in Vegas the $2.00 gambler doesn't get to sit at the same table with the guys that are betting $20,000.00 and up per hand. With fund managers managing millions of dollars from all of us $2.00 gamblers, we don't get much of a say, particular when you consider that all share transactions generate a commission for someone, win or lose. This is clearly a case of too much control in too few hands and until that ability is dampened the stock market will continue to be a place where muggings will occur on a regular basis.
  • Reply 12 of 73
    lkrupplkrupp Posts: 10,557member

    Quote:

    Originally Posted by anantksundaram View Post


    The bottom line with AAPL currently is blah sentiment. Unless that changes, it'll be a back and forth in the $400s. Nothing much can change that except for real news.


     


    As I've said before, it's a bleak summer for AAPL (and AI, which is forced to cover Samsung's every move).



     


    But even with all your dire predictions Apple is, as of right now, still the most valuable company in terms of market capitalization. That's some "blah sentiment" isn't it? They can swing aimlessly around in the $400s and still be worth more than anybody else. How much higher does AAPL have to go for it not to be a "bleak" summer? 

  • Reply 13 of 73
    beltsbearbeltsbear Posts: 314member
    All I can say is THANK YOU for the cheap shares. I picked up more during that period.
  • Reply 14 of 73
    anantksundaramanantksundaram Posts: 20,403member

    Quote:

    Originally Posted by lkrupp View Post


     


    But even with all your dire predictions Apple is, as of right now, still the most valuable company in terms of market capitalization. That's some "blah sentiment" isn't it? They can swing aimlessly around in the $400s and still be worth more than anybody else. How much higher does AAPL have to go for it not to be a "bleak" summer? 



    1) It is only 'dire' if you have the investing horizon of a gnat.


     


    2) 'Most valuable' means nothing. All that matters is 'value' relative to expected future cash flows and risk (or as a crude short-cut, something like the P/E ratio).


     


    3) $600. But I don't expect that this summer. If I am wrong, I can live with that......image

  • Reply 15 of 73
    herbapouherbapou Posts: 2,228member

    Quote:

    Originally Posted by macFanDave View Post



    Stock manipulation is illegal. People who have spread lies about companies to drive their stock prices one way or the other (mostly down) have rightfully gone to jail for this. Why aren't regulators doing anything about the obvious campaigns of lies and smears against Apple?



    I guess the Rule of Law isn't what it used to be.


     


    There is nothing illegal in shorting a stock.  Trying to drive down the stock with false news could be investigated depending on youre status or media.


     


    Apple did what they had to do regarding shareholders, the return to investment in terms of dividends and buyback is outstanding. This is why dips around $400 are getting violent rebounds because the stock P/E drops below 10 and the yield gets to 3% at those levels. Professional short sellers will cover depending on who's buying. Around $400 the big value funds get in and there is no stopping them. So the short covers, which makes the stock rebound even more.


     


    The market average P/E is 15.5, so Apple is well below it. IF you take into account the div yield and the new stock buybacks Apple return on investment is around 6%-7%, which should support a stock price of around $500 in a no growth environnment.


     


    So whats keeping the stock down?  Fears of declining EPS is, and lack of innovation.  This the second part of what Tim Cook needs to do for the company, put back Apple into growth mode again and this is only achievable with innovation. The market is discounting a lot of bad news at the current price point, so any kind of good innovation could rebound the stock to the mid $550 in a very short period of time.


     


    BTW Tim Cook will be on AllthingsD tonight:  http://goo.gl/S4oGX

  • Reply 16 of 73
    rogifanrogifan Posts: 10,669member
    herbapou wrote: »
    There is nothing illegal in shorting a stock.  Trying to drive down the stock with false news could be investigated depending on youre status or media.

    Apple did what they had to do regarding shareholders, the return to investment in terms of dividends and buyback is outstanding. This is why dips around $400 are getting violent rebounds because the stock P/E drops below 10 and the yield gets to 3% at those levels. The market average P/E is 15.5, so Apple is well below it. IF you take into account the div yield and the new stock buybacks Apple return on investment is around 6%-7%, which should support a stock price of around $500 in a no growth environnment.

    So whats keeping the stock down?  Fears of declining EPS is, and lack of innovation.  This the second part of what Tim Cook needs to do for the company, put back Apple into growth mode again and this is only achievable with innovation. The market is discounting a lot of bad news at the current price point, so any kind of good innovation could rebound the stock to the mid $550 in a very short period of time.

    BTW Tim Cook will be on AllthingsD tonight:  http://goo.gl/S4oGX
    What's your definition of innovation? Because it seems Wall Street's definition is a 5" phone and a cheap plastic phone. And maybe the cheap plastic phone is 5" too.
  • Reply 17 of 73
    maestro64maestro64 Posts: 5,043member

    Quote:

    Originally Posted by Ireland View Post



    New laws.


    yeah one that say when the so call experts and analysis make statement of fact, even when they trying to preference it with statement like IMHO, they should required to back those statement up and explain how they came up with those so call facts and what was their reasons for making them.


     


    If these people had to worry about someone following up on them I bet they would stop the speculating.

  • Reply 18 of 73
    herbapouherbapou Posts: 2,228member

    Quote:

    Originally Posted by Rogifan View Post





    What's your definition of innovation? Because it seems Wall Street's definition is a 5" phone and a cheap plastic phone. And maybe the cheap plastic phone is 5" too.


     


    imo a 5" phone and a cheap emerging market phone would fall into the "execution" category. On tops on subpar innovation, the markets thinks Apple is also doing a bad job on execution. Apple should enter those markets, that would help EPS but its not going to WoW people. To me those products are important because they would support critical mass of the ecosystems. Apple needs to preserved its ecosystem and should offer something at the low end, because they are the only makers of iOS hardware, nobody is going to do it for them.


     


    To me good innovation is a WoW thing, something nobody saw coming. Something that makes you say 'omg I must buy this'.

  • Reply 19 of 73
    mj webmj web Posts: 918member


    If Tim Cook wasn't such a bow wow CEO AAPL wouldn't be such a dog of a stock! Another down day in an up market? I have personally been waiting to buy a Retina iPad mini since the day the mini came out. The longer I wait the lower AAPL will sink because there are millions of people waiting for Apple to stop resting on its past laurels and release a modern f-ing product! Jeez.

  • Reply 20 of 73
    nelsonxnelsonx Posts: 278member

    Quote:

    Originally Posted by Rogifan View Post





    What's your definition of innovation? Because it seems Wall Street's definition is a 5" phone and a cheap plastic phone. And maybe the cheap plastic phone is 5" too.


    What's yours? A thinner phone? Because in recent years this is all Apple is doing. They make things thinner. That's their definition of innovation.

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