The “easy” answer is that there were more sellers than buyers of Apple's shares. However there were reasons for that even after the company had such a strong quarter with revenue up 27% year over year, EPS up 40% and selling 61.2 million iPhones. There were bearish notes from half a dozen analysts and over a dozen from bullish analysts but those mainly addressed longer term positions. Below I’ll go through what were some of the probable reasons the shares were down for three days after the earnings announcement. (Note that I own Apple shares and have sold Puts which is a Bullish position).
Classic situation of a few large sellers selling into intra-day bounces
When you look at Apple’s daily chart for Tuesday through Thursday you’ll see that there are a series of lower highs and lower lows. It looks like there were a handful of large funds that were probably overweight the shares going into earnings and decided to lighten up. What they probably did was to sell into any strength the shares exhibited which would create more sellers than buyers. After they had sold a portion of the amount they were going to sell the stock would trade up and they would release some more sell orders.
Window dressing at the end of April
While not the end of a quarter window dressing, or portfolio managers wanting to report how much of their top 10 holdings they owned, may have played into the sell off to some degree. However, unless someone was very overweight this may not have had much effect since Apple has done well so far this year, up 20.2% the day it reported earnings.
Comment on Watch margins was a bit of a shock
Tim Cook said on the conference call that Apple’s Watch gross margin would be below the company’s average which was 40.8% in the March quarter but helped by lower warranty accruals. Pretty much everyone was expecting that the Watch’s margins would be higher so being told that they would be lower was a disappointment. This could have lead to some portfolio managers deciding to take a wait and see approach until July when the first quarter with the Watch’s results will be available (but not detailed with its unit sales in the press release).
Portfolio managers may have also decided to lighten up on Apple since the iPhone is going into its historically weaker quarters prior to new versions being announced in the fall along with the very tough compares it will have, especially in the December quarter.
Short interest has been relatively flat for over three months
The short interest in Apple’s shares has ranged from 59 million to 73 million shares from December 31, 2014, to April 15, 2015. This is down from about 100 million shares in October and 138 million heading into the iPhone 6 launch in September. It looks like there wasn’t any help to the stock with short sellers deciding to cover post the earnings release.
Apple’s shares were weaker than the overall market
Apple’s shares were either down more than the market from Tuesday through Thursday or down when the S&P 500 was up. The S&P 500 was down 0.4% and 1.0%, on Wednesday and Thursday, respectively, which probably “helped” Apple’s shares to be weak since they were down 1.5% and 2.7% on those two days.
