Apple Smacked into Bear Market by Margin Rules
Investors took a bite out of Apple's market capitalization on Wednesday, sending its shares diving by more than four percent after a clearinghouse hiked margin requirements on the stock.
In early trading, COR Clearing sent Apple's shares swooning when it announced that it was changing its margin requirements on Apple to 60 percent from 30 percent. The move effectively raises the amount of capital that investors are required to have when they take positions in the stock.
The news came just as the iPhone maker's shares had managed to extricate itself from a prolonged slump. COR's bombshell, however, sent Apple reeling back into bear territory: the tech giant is down more than 20 percent from its record high of $705 in September.
Despite a suite of new products such as the iPhone 5 and the iPad mini, Apple is facing an onslaught of competition, primarily from Samsung and Google. Both companies are challenging the tech behemoth's traditional dominance in smartphones and tablet devices, in an ever intensifying digital war for the loyalty of tech savvy consumers.
Apple's chart is close to forming a 'death cross'— where the stock's 50-day moving average falls below the 200-day moving average.Technicians usually see the sign as a cue to sell.
"It's one of the best names out there, but those people who think it's going to have a rocket ship ride to $1,000 may be mistaken because competition is coming in and with a market cap this large, the expectation is quite high for the name," said Colin Gillis, senior technology analyst at BGC Financial.
"We'd like to collect premium on the name at these levels," The firm has a $600 price target and a "hold" rating on the company.
Respected Internet analyst Henry Blodget told CNBC on Wednesday that Apple's fundamental problems are mounting. He said Apple was stuck in a "product hole" that will freeze its new product menu in stasis for several months, even as challengers roll out new gadgets.
He also pointed to Apple's questionable ability to earn profits on its more modestly priced goods as a potential drag on the company.
"That's the big thing that worries me, is that they're going to go to a lower margin mix of products especially as the iPad mini takes off. It'shard to see the stock really rise in the face of a compressing margin," Blodget added.