Mini Flash Crash in Tech Names Just Today's Trading? AAPL, AMZN

Tuesday, September 28, 2010

Today, right off the open shares of Apple (AAPL) tumbled allegedly following a rumor posted by The Fly on the Wall claiming that COO Tim Cook was leaving the company for Hewlett-Packard. Shares collapsed over $16 from the open hitting $275, down 5.6% from yesterday's close. The weakness in AAPL led to weakness in other high beta technology names like Amazon (AMZN), Baidu (BIDU), Google (GOOG) and Netflix (NFLX) to name a few. The rumor has now been denied as reported by Business Insider and shares are recovering somewhat.

After nearly 4 weeks of advancing day after day without any possibility of a profitable short side trade, the tech leaders of the market were sold aggressively and indiscriminately off the open on today's session. Shares of AAPL were up 20% for just the month of September as of yesterday, an impressive run to say the least. There are clearly a swath of traders and investors ready and willing to sell at at the first sign of weakness, many of which were probably using trailing stops.

So you've got a pot containing an overbought stock, plenty of sell stops, a tape dominated by high frequency traders and you add a negative rumor: we see rapid, vicious selling. Stocks have always risen on an escalator and fallen on an elevator; it's just the nature of composed, rational buyers and panic-driven sellers. But, in today's market with 70% of the volume executed by algorithmic traders, it seems the unbelievably fast drops are here to stay on the short side coupled with the slow, short-busting grinds higher on the long side.

Personally, I think this is only the beginning of perhaps a couple weeks of weakness in the tech names and today's action will rightly cause some fear for investors. Like the May 6th broad market flash crash, it only foreshadowed what was to come. Though I am not a bear, not at all. The leaders just need to rest and today was the first significant downtick in these stocks. Some sideways to downside action seems likely in the short-term.

The flash-style crashes are here to stay and we should embrace them as traders. As is clear from AAPL's chart, even if the decline was unexpected, there was a lot of money made on the long side by quick, opportunistic buyers.

Brandon R. Rowley
"Chance favors the prepared mind."

*DISCLOSURE: Nothing relevant.
blog comments powered by Disqus