Was Thursday, October 13, a good or a bad day for Apple stock (AAPL) – Get Apple Inc. Report and its investors? It depends on what time during the trading session the question refers to.
At its lowest of the day, AAPL traded at just above $134. This is the smallest price at which Apple stock has exchanged hands in the second half of 2022.
Less than seven hours later, Apple shares were valued at nearly $144, an intraday jump of nearly 7%. Between the opening and closing bells, Apple gained $160 billion in market value – that is, the equivalent of an entire Wells Fargo (WFC) – Get Wells Fargo & Company Report or Verizon (VZ) – Get Verizon Communications Inc. Report.
Below, I try to make sense of this action-packed day for the markets and Apple stock.
Figure 1: Apple Stock: Making Sense of Thursday’s Ferocious Rally
Unsplash
(Read more from Apple Maven: Apple Stock: Fears Are Overdone, Say These Analysts)
AAPL: a few key facts about this rally
Let me provide the reader with a bit more context about this very unique day of trading. As I pointed out not long ago, an intraday swing from low to high that would be considered normal for Apple is roughly 2%. This has been the average over the past 10 years, for example.
Thursday’s 6.7 percentage point climb from the bottom fell within the top 1% of trading ranges for Apple stock in the last decade. See the histogram below, which shows the percentage change in share price from lows to highs of the day.
Figure 2: AAPL distribution of intraday swings, last 10 days.
DM Martins Research
Out of curiosity, the wildest ride for Apple stock within a single day in the past decade happened on August 24, 2015. Back then, investors were spooked over growth deceleration in China, a market to which Apple was (and still is) heavily exposed. AAPL bounced nearly 16% from the lows of that day to the peak, but retreated and ended the session down 2.5%.
For clarity, an intraday swing (opening to closing bell, i.e. same day) is different from an overnight gap (closing to opening bell, i.e. from one day to the next). A “gap up” or “gap down” can also be very large, especially around earnings day and other important events.
Why stocks bounced so hard
Those who followed closely the news flow must know why trading was so volatile on October 13. The September CPI (a.k.a. inflation to the consumer index) report came in hot once again. The headline number climbed 8.2% YOY, about 10 basis points above expectations.
The core inflation measurement, which excludes volatile energy and food prices, increased 6.6% and 0.6% YOY and compared to August, respectively. In both cases, the readings were worse than most had been projecting.
Given the bad news, why didn’t stock prices fall then? Well, they did. The S&P 500 (SPY) – Get S&P 500 ETF TRUST ETF Report, very early in the trading session, dropped 2% from the previous day’s close. All of a sudden, a bullish tide sent every sector and most stocks much higher.
It is not clear what triggered the rally. I suspect that market mechanics were to blame (or credit) for the phenomenon.
Traders probably placed bets against stocks ahead of the inflation print, which helps to explain why the S&P 500 had been down nearly 5% over the previous five trading days. Once the bets paid off in the morning, traders probably moved quickly to close their short positions. That might have been enough to unleash a buying spree that became self-reinforcing.
Of course, this is just speculation on my part. At least I find this explanation more plausible than the idea that investors might have capitulated and decided that the CPI report did not look as bad as they originally thought.
AAPL investors feel great… should they?
There is nothing wrong with Apple stock turning a 2.4% loss at the worst of the day into a 3.4% gain at the end of the session. The problem is that Thursday’s rally might not mean that bulls are ready to take over from here.
I have been arguing repeatedly that, in the short term, AAPL investors should expect more volatility. And because volatility is a reflection of weak markets, further drops in share price are certainly not out of the question.
Take the August 2015 example mentioned above. Despite Apple shares having recovered by as much as 16% in one single trading session, (1) volatility remained very high, and (2) returns were disappointing over the following 12 months. See the graph below.
Figure 3: AAPL performance from August 2015 to August 2016.
For this reason, I have not changed my stance on AAPL. In the long term, buying shares at current levels will likely prove to be a smart move. But in the short term, buckle up for what will likely be a few more rounds of sharp ups and downs in the share price.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
