"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
-
Sun Tzu

Tuesday, April 17, 2012

Apple and Efficient Markets

So markets are efficient, right? Prices can't be predicted because all available information is built into them at any given point of time and additional news gets discounted immediately.

So if you believe in fully efficient markets, how would you explain yesterday's four percent drop in Apple's stock price on no news? Here is a entry from briefing.com:

"ISI Group says they are not hearing anything new or incremental for the weakness in AAPL stock (down over 2%, but up ~$5 from its intraday lows). They believe this could be a simple "collapsing" on its own weight given the ytd move (i.e., AAPL up ~45% vs. S&P 500 up ~10%)"

ISI calls it "collapsing". I call it mean reversion, a market anomaly, which challenges the thought of fully efficient markets and is one of the pillars of my trading strategy. I haven't traded AAPL this year. In fact, I missed the recent move up and I was waiting for a pullback opportunity. After some (market) stabilization, it could get really interesting to pick up some shares in the next weeks.