Mysterious ‘glitch’ trade foretold Apple’s fall

What's driving Apple down?
What's driving Apple down?   

On Dec. 1, Apple's trading opened normally, with the stock hovering near its all-time high just below $120 a share. At around 9:50 a.m. ET, the stock dropped 6 percent to $111.27 on extremely heavy volume. A minute later the shares shot back up, halving the decline, as chatter across the floors focused on a so-called fat finger mistake or a glitch in a high-frequency trading algorithm as the cause of the selloff.

Eight days later on Tuesday, Apple shares fell below that glitch low price, turning what traders dismissed as a mistake into a premonition.

"There's always a big sell order behind a fat finger," said Steve Grasso, director of institutional sales at Stuart Frankel & Co. on the floor of the New York Stock Exchange. "Think about it. The guy wasn't trying to order lunch but instead sold Apple."

Apple intraday 10 days

Source: FactSet

So what happened on Dec. 1, according to traders, is that a big hedge fund with a nice track record for 2014 wanted to sell its most successful investment (Apple at that point was up 50 percent year to date) in order to lock in that nice year-end performance. So the hedge fund sent a big sell order down to the trading desk.

The order was meant to be a limit order, one only to be executed at a certain specified price over a certain time, but instead was mistakenly entered in as a market order, causing the big slide in the stock. It was no coincidence this occurred on Dec 1, when investors start to close up their books for the year.

The list of top Apple holders are also some of the best hedge fund performers for the year.

The tech giant makes up 16 percent of Carl Icahn's portfolio, according to Symmetric.io, and his Icahn Associates is up 15 percent in 2014.

Greenlight Capital, which David Einhorn has guided to a 9 percent 2014 return, has 13 percent of its money in Apple, according to Symmetric.

Other top-performing hedge funds with more than 10 percent of their money in Apple include Valiant Capital, Andor Capital and Coatue Management, according to Symmetric.io data.

We'll find out just who exactly was anxious to pull the sell trigger on Apple when 13-F filings come out next year.

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For more evidence of profit-taking in Apple, look at what stocks were up most of the day Tuesday as Apple was taking a hit: energy.

The Energy Select Sector SPDR, down more than 20 percent since July on oil's rout, was higher in Tuesday morning trading.

"Guys are flipping over their portfolio," said Grasso. "They're locking in profits in the momentum names like Apple and buying some value energy stocks."