When Apple Inc. (Nasdaq: AAPL) stock plunged about 6.4% in one minute this morning, befuddled Wall Street analysts came up with a lot of unlikely culprits.
RBC Capital Markets analyst Amit Daryanani told CNBC that it might have been Morgan Stanley's rating change to the tech sector from "overweight" to "market weight." Or maybe Morgan Stanley's trimming of its Apple stock weight from 4% to 3%.
Others speculated that reports of weak Black Friday sales had spilled over to the AAPL stock price. Or possibly profit-taking was the culprit.
A few tried to blame the sudden drop on concerns about the Apple Watch – a product that won't even go on sale until the middle of next year.
All of this is obviously grasping at straws. Nothing the analysts suggested would make a widely held stock like AAPL sink more than 6% in a minute.
The real explanation is one that most Wall Street types don't like to talk about. Apple stock had a mini-flash crash because a bunch of computers decided to sell.
In other words, some technical aspect (or combination of aspects) of AAPL stock triggered a huge wave of sell orders. Trading algorithms can be very sophisticated, so it's hard to tell just what set off the sell signal.
But it's the only explanation that makes sense.
Only One Thing Explains the Apple Stock Price Drop
Look at what happened. Apple stock fell more than 6% in one minute, then retraced about half that within the next several minutes.
For some perspective, AAPL volume averages out to just over 150,000 shares a minute on a typical trading day.
Volume that high is a strong hint that it wasn't just algorithms involved, but high-frequency trading (HFT).
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We've written a lot about the ill effects of HFT on the stock markets here at Money Morning. Today's AAPL stock mini-flash crash is just one tiny example.
Clearly, news had nothing to do with what happened.
And while the puzzled analysts pointed to some possible drags on Apple stock, they simply ignore other pieces of positive news.
For example, on Monday morning Ben Reitzes of Barclays raised his target on AAPL stock from $120 to $140.
And a UBS survey of smartphone owners released Monday morning suggested that Apple will sell 24 million Apple Watches in 2015, 40 million in 2016, and more than 67 million in 2018.
Since it has no basis in reality, today's AAPL stock drop will soon be forgotten.
The long-term prospects for Apple stock remain as strong as ever. Apple is an earnings dynamo and has a good chance of becoming the world's first $1 trillion company.
The lesson here is simple: Don't get distracted by Wall Street's nonsense.
AAPL stock was still down about 3% in midday trading, at about $115.60.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.