Apple stock experienced a flash crash yesterday morning, dropping 3% in one minute on extremely heavy volume. With Apple trading near all-time highs, market pundits have become increasingly eager to point out why Apple's stock dropped. CNBC ran an article yesterday titled, "Here's why Apple shares took a dive: Pros". With such a headline, I knew what I was getting myself into and I wasn't disappointed as the article contained six reasons, impressively none of which were related to each other, that explained why Apple's stock had crashed.
Reason 1: Morgan Stanley Downgrade
Daryanani got on the phone with his trading desk to find out what they were seeing. It's a common occurrence on Wall Street for sell-side analysts to periodically check-in with their trading desk to see if there is anything unusual with the incoming buy and sell orders. In reality, the traders are just reading blogs and AOL IM themselves looking for reasons a stock is up or down since they don't know either.
Reason 2: Program Selling
After getting off the phone with his traders, maybe Daryanani got some incoming calls from clients that actually knew what was going on. CNBC gives the reason one sentence.
Reason 3: Technical Analysis
People sold Apple because it crossed a random moving average.
Reason 4: Profit-Taking
Apple is down 3% in one minute and Basenese concludes that it resulted from long-term investors deciding now is the time to sell. It is just a coincidence that everyone decided to sell at exactly the same second...literally.
Reason 5: Stock Upgrade
Basenese also thinks a stock upgrade may have caused Apple's stock to crash. I assume a stock downgrade would cause Apple's stock to pop?
Reason 6: Weak Black Friday Sales
I assume this reason came in from traders with little to no knowledge about Apple or that Black Friday sales metrics were largely irrelevant because of retailers holding sales during the week leading up to Black Friday.
The CNBC article has 143 comments so I assume it accomplished its goal of attracting page views. Meanwhile, Reuters published an article yesterday about Apple's flash crash, listing one primary explantation: algorithmic and high-frequency trading.
Reason 1: Algorithmic Trading
Similar to the 2010 Flash Crash, yesterday's flash crash impacted over 300 stocks, not just Apple. The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading (CFTC) looked into the 2010 Flash Crash and concluded that one trader initiated a sell program to sell S&P 500 futures contracts. High-frequency trading firms saw the order and started selling the contracts they had just bought from this one trader. A resulting liquidity vacuum (lack of buyers) formed and then spread into the equity markets. I suspect something along those lines impacted the stock market yesterday morning. Of course, this theory doesn't lead to the most exciting headlines and stories, so when the next flash crash occurs (and it will), I'm confident we will see new articles from the "pros" giving us six explantations for why Apple crashed.