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What's behind unusual trading in Apple

Shares of Apple have exhibited many trading anomalies in the last week since we predicted that profit-taking might take place around the $600 level. Sure enough, it appears that others were on the same page this week as Apple has seen its worst performance in nearly two months.

In my opinion, it appears that profit taking by at least one large institutional player is keeping AAPL in its recent sideways range. Do I think Apple will go higher? yes, but not after a solid base is formed above $600.

The level traders are watching for support is $595. AAPL tested that level many times last week, only to hold firm and bounce back to the $600 area fairly violently. If this support level does fail to hold, the stock could see a quick trip down to the $580-$565 area, providing a solid buying opportunity.

Which brings me to the "flash crash" in Apple on Friday morning. Many have speculated that the sudden drop to $542.80 was the result of a misprint or a computer glitch. But similar trades hit the tape earlier in the week and were canceled, as was Friday's. (See chart below)

I believe that these trades were done intentionally to scare off buyers and slow the stock's momentum, with full knowledge that the transactions would be canceled. This type of action, known as "stub quotes," is believed to have been partly responsible for the market flash crash of May 2010 .

AAPL
AAPL



(Chart courtesy of tradeMONSTER )

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