Apple's Tax-Induced Selloff Is Over
NEW YORK (TheStreet) -- The technical test of resistance for Apple(AAPL) happened early Tuesday morning at the $570 level. Since the intraday reversal, Apple has found stability above our baseline price point of $585 and we have added to positions.
As Apple was trading in complete contradiction to the market over the past five trading sessions, it was obvious that something was happening beneath the surface. Weakness from Spain might have had something to do with it. Google(GOOG) sold off after its earnings report which may have influenced Apple.
Gene Munster released a research report suggesting that Apple would beat on revenue and earnings but would miss on Mac units which was cause for concern. Any of those variables could have triggered the five-day selloff but the most likely reason is that broad-based income tax selling has grown to an all-time high this year.
How many investors have been forced to sell Apple in the last week in order to pay taxes? As Apple evolves into its own asset class, macro variables such as the April 15 income tax deadline will influence the stock in new ways. Last year, Apple dropped 9.6% from $351 on April 1 to a low of $320 the Monday after the 15th. This year, Apple dropped 12% from $644 on April 10 to $571 on April 17. This is definitely something we should watch out for next year.
The timing of today's bounce is validation of our tax thesis as the primary reason for the recent selloff. Everyone has been trying to come up with creative reasons for the selloff but the actual reason is systematic. We will continue to add to positions as the stock movement rewards us.
Monitoring the action into today's close is a very important indicator that will signal what kind of run we might have during the remaining pre-earnings period. With Apple still $50 off its high, the next five trading days are capable of producing excellent gains.