The big bullish argument on Apple in the fourth quarter of 2012 was that the near $200 drop from its high in the stock price was primarily due to tax-motivated selling. The bulls contended that fundamentals were intact. Now this big bullish argument has proven false as trading in 2013 has unfolded.
In its December 29, 2012 issue, Barron’s published an article titled ‘The Reverse January Effect.’ Barron’s asked a question, “Did Apple sell off because investors were taking gains in advance of the tax hike?”
Here is how Barron’s answered the question,
"Apple is going down for one simple reason," Jim Cramer told his CNBC viewers earlier this month. "The vast majority of people who own the stock have big capital gains." Apple's shares gained 260% over the three years through the third quarter of this year, but have lost 23% so far during the fourth quarter. If Cramer is right, the selling should let up next year.
Barron’s did find out that there was limited evidence to support the tax selling theory. If the tax selling theory was correct, Apple stock should now be trading over $600. As of this writing the stock is still languishing at $520.
My 30 years of experience in the markets have shown that when everyone agrees about a certain proposition, the proposition is not likely to work out. The market is perverse; it tends to prove wrong the largest number of people possible.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article. Subscribers to The Arora Report are long Apple from $131 and have taken partial profits at $360, $525, $629, $568 and $610.
