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Behind Apple's Selloff: 'There Was So Much Euphoria'

A stock giving back gains after rising nearly 75 percent in less than five months should surprise no one.

Apple Store 5th Ave NY
Apple Store 5th Ave NY

But Apple's steady drop over the past week has caught Wall Street off guard, spreading damage through the broader market and causing traders to wonder what has gone wrong with the market's most beloved stock.

"There was so much euphoria surrounding this stock," says Andre Julian, chief market strategist at OpVest Wealth Management. "The momentum eclipsed the actual fundamental reasons for the stock to keep going up."

Indeed, despite its powerhouse position in the smartphone and notebook markets, Apple's meteoric rise had to end sometime.

The stock roared off its most recent low in late November and has been on a parabolic rise since. Analysts have been racing to outdo each other in pumping up Apple's prospects, with talk escalating to a $1,000 share priceand $1 trillion market cap.

Eventually, all that delirium would have to take a pause. The stock is done nearly 7 percent since its April 10 high and fell 3 percentMonday. The Nasdaq tech gauge, which is driven more than 20 percent by Apple, took the worst of the market damage, while the Dow industrials index, which does not count Apple among its 30 members, posted solid gains.

"When the iPad 3 was released it created more momentum, but now there are issues with the iPad 3 itself," Julian says. "The concern among investors is where the next big earnings wave is going to come from. What's the new, revolutionary gadget that's going to drive earnings in the future?"

Apple's rise, in Julian's view, resembles the stock market's jump off its October trading lows, and he sees both taking their lumps in the days head.

Ultimately, he believes the major indexes will test their 2011 year-end close, while Apple could give back half its gains this year.

Another theory on trading floors Monday had it that with Texas Instrument's imminent move to the Nasdaq — along with its $37 billion market cap — stocks like Apple and Google , which also fell sharply in the day's trading, wouldn't carry so much weight anymore.

Even among those who remain enamored of Apple's future prospects, there was a feeling that the buying got overextended and needed to cool.

"It's just profit-taking," says Dave Rovelli, managing director of US equity trading at Canaccord Genuity. "People who owned the stock from $422 (its early January level) to $644 (the April 10 intra-day high) are going to take some of their profits ahead of the quarter."

Rovelli lists a few other reasons for the selloff: Consumers who will wait until the September iPhone 5 launch to buy a new phone; competition from Samsung's Galaxy 3, and trading stops put in when the stock hit the psychologically important $600 barrier.

Yet overall he sees the stock going to $700, but not until it sloshes around in a trading range that could last through the summer.

"A lot of people think it's priced for perfection," Rovelli says. "So if there' s a hiccup, you could see a large move down."