Here's why Apple dropped

What happened to Apple earlier today? About 9:50 a.m. ET it went from roughly $117 to $111, a fairly significant drop of over 5 percent. Huh?

The usual market rumors quickly surfaced: A fat-finger trade was the most common. There were also product rumors, none of which seemed plausible: iWatch, iPad, even hacking rumors.

Occam's Razor says the explanation with the fewest assumptions is usually the correct one. In other words, the most likely explanation is usually the right one.

After talking to several traders, here's the explanation with the fewest assumptions: Someone sold a ton of Apple. Very fast.

Volume was very high during that minute, and on either side of it. More than 6.5 million shares traded in that one minute; Apple normally trades about 50 million shares a day.

That's a lot. There were a few large 50,000 or so share bids came in, but they kept getting taken out and the stock continued to drop.

That suggests a large seller.

But most of the trades were the usual, boring few hundred shares at a time.

Apple Inc.
Adam Jeffery | CNBC

OK, it looks like someone was trying to sell several million shares in a short period of time. A large seller comes in, and the price dropped, then recovered a bit. That's how markets work.

Still, you can't help but think if this seller would have been a bit more intelligent, they could have lessened the price impact.

And this is where the "fat finger" idea is not so crazy. An intelligent trader would more likely try to sell those 6 million shares over, say, two hours, rather than in less than two minutes. Maybe someone typed in two minutes instead of two hours?

And it wasn't just one trade: There was fairly consistent selling over a minute or so. It wasn't a perfect program, like 100 shares every 50 milliseconds, but it seemed to be pretty persistent.

Whatever. Of course, there are others who note that the Apple trade precipitated or coincided with a big drop in other momentum names like Yelp (YELP), Twitter (TWTR), LinkedIn (LNKD), and others, but that's a whole other conspiratorial can of worms.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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