Re Cramer and Hedge Fund Action:
I suspect that you just heard it from the horse's mouth. Cramer has been a hedge fund manager, and knows the ins and outs.
Further, we have experienced a prolonged bull run, without any major pullbacks, retracements, or corrections. I would find it surprising if a lot of hedge funds (which tend to short a bull market and vice versa) have not experienced some serious profit contraction by misjudging this market, and would do virtually anything to add some coin to the bottom line.
You may be correct in thinking that no one manager could successfully manipulate the price of a stock such as AAPL. Just remember, there are a lot of hedgies out there: many of them will have a common purpose, and if they act in concert they may well be able to strongly influence an individual stock performance over near (and possibly even intermediate) term. Say a Fund has $10 million to use.. then multiply that by 20 funds, and you are approaching some serious money. They don't have to pressure a lot of stocks--they can concentrate on market leaders and indices to develop a weaker market picture and increase FUD.
This past two week's price action had all the earmarks of manipulation:
If Hedgies had sold a lot of OOM calls (75-90's) when AAPL went to 50s, they were in serious deep water when AAPL surged back to 93. If they had bought a lot of puts, say DEC 85's for which they might have paid $30-35, then, when AAPl hit 85, that was 'ghost' money: it had simply vanished.
So, by pressuring AAPL stock, they insured that all of the DEC 90 and 95 calls expired worthless. Further, they drove the price down so that many holders of the DEC 85s sold out cheaply, just to try and save something.
Now, they are working on the January options. And they may be able to drive AAPL down or keep it down for a while longer. After all, during the holiday period between Christmas and New Year many traders take time off--so the market is relatively thinly traded, and consequently easier to move. IMO, market forces will catch up with them in the next two weeks, however. Why?
1. The Hedgies are not alone in this market. There are many more long funds than Hedgies. They have been watching the market action and salivating. Why have they not done anything, you may ask? Because the Hedgies are helping them--if the long funds think that AAPL is a great buy at 90--and most do (look at the price estimates, listen to AAPL's sales data), then by all means *let* the Hedgies drive the price down to the low 80's.... 70's.. 60's even! The Hedges are creating an even better buying opportunity for the long funds--and it doesn't even require complicity. And the Hedges are taking advantage of this pressure to buy bargain-priced AAPL calls.
2. Manipulation time is running out--January Expiry is 01/19/07:
2a. MacExpo is 12-14 January -- traditionally, AAPL announces new products and the price climbs.
2b. APPL announces quarterly earnings about 17 January; nobody doubts that it will have record earnings, and they could be 'slap-yo-momma' good!
2c. The long funds know this, too. At some point prior to expiry, they are going to start buying heavily. Psychologically, do they buy before year end? or after year end and before Expo? or after Expo and before earnings? or after earnings? They want to time their buys to take advantage of the greatest hedge pressure, and the greatest upward potential for the stock.
When the long funds start serious buying, no amount of manipulation is going to slow AAPL down.
"Pin Action" refers to bowling: when you hit one pin, it may knock another pin, which hits another, etc. So by picking on market leaders, pressuring them lower, the Hedges are able to move the entire market.
Good luck and good trading. |
