GameStop and Apple: What’s the connection?

Bloomberg’s Lu Wang and Melissa Karsh had the story two days ago.

From “Hedge Funds Slashing Equity Exposure at Fastest Pace Since 2014” posted Wednesday afternoon:

apple gamestop connectionHedge funds are slashing their stock exposure at the fastest rate in more than six years as a wave of volatility tied to some of their most-prominent bets forced a retreat from the market.

Fund managers covered their money-losing short sales while trimming bullish bets for a fourth straight session Tuesday. Over that stretch, their total outflows from the market reached the highest level since October 2014, data compiled by Goldman Sachs Group Inc.’s prime-brokerage unit show.

Whether it’s forced selling to cover losses on short sales or simply the fate of high-beta bets in a rout, stocks that hedge funds have shown enthusiasm for in the past led the way down Wednesday. The Goldman Sachs Hedge Industry VIP ETF (ticker GVIP), tracking their most-popular stocks, tumbled 4.3% for the worst day since September. All but one of its members ended in the red…

“If you’re getting killed on your shorts and need to close those out and reduce overall exposure, you’re going to go first to big winners that have done well,” said George Pearkes, global macro strategist at Bespoke Investment Group LLC.

Most-shorted shares backfired again Wednesday, with a Goldman Sachs basket of such stocks jumping 9%. The group has rallied more than 50% in January, poised for deliver the worst month for bears on record.

The broad market, however, was bleeding. The S&P 500 dropped 2.6% on Wednesday for its worst day since October. Tech giants, which hedge funds had rushed to buy before their earnings, wavered. Apple Inc. snapped a six-day winning streak. (emphasis mine) Tesla Inc. dropped 2.1%, trimming its 2021 gain to 22%.

Thanks to friend-of-the-blog Mark Visnic for the pointer.

Mark’s take: Until hedge funds right-size their risk this price action we are seeing in Apple could continue. AAPL would have been down much more if it had reported anything less.

See also: The Gospel according to WallStreetBets

19 Comments

  1. Tommo_UK said:
    Thanks for spelling it out PED. Much needed for less sophisticated viewpoints.

    3
    January 29, 2021
  2. Gregg Thurman said:
    The bears took a massive beating, temporarily impacting the bulls. Good.

    2
    January 29, 2021
  3. Gary Morton said:
    One of the somewhat unexpected bits of information in Apple’s earnings release on Wednesday was their very high level of buyback activity during the quarter: $24 billion that netted 200 million shares at an average of $120 per share. Given the strange dip following a blowout earnings report and positive forecast comments, I would suspect they are repurchasing all they can in today’s market (5% of daily volume) and maybe preparing another ASR.

    8
    January 29, 2021
    • Fred Stein said:
      Yes, and upvoted.

      Apple’s recent past average had been about $18B on repurchases.They’re in line with historic %’s at 1.1%.

      We can ignore short term turbulence, or if you like to ‘play,’ we might ask Gregg his call strategy.

      3
      January 29, 2021
      • Gregg Thurman said:
        My Call Spreads were borderline profitabegoing into Thursday. Friday was a disaster.

        I’m sitting on my hands until the Robin Hood people run out of funds. If they are inexperienced (with little capital) they will be flushed out soon enough.

        If this persists then they are knowledgeable and well heeled. Robin Hood has the ability, as all brokers do, to see which investors are behind this and take appropriate action.

        0
        January 29, 2021
  4. Dave Ryder said:
    Buying opportunity; call options if you’re more aggressive.

    2
    January 29, 2021
  5. Michael Goldfeder said:
    These cockroach hedge funds are being taught a lesson they never saw coming. Long term Apple holders are benefitting tremendously from this activity as Luca will be buying as much stock as possible under the SEC 10 B rules to retire even more shares at a bargain price.

    Having an unparalleled buyback program in place lets me sleep quite well at night because in another month, or even less, this stock will move past $150 and I’ll be having a silent toast to the unsavory hedge funds who all made this move possible with their Gordon Gecko greed. Not to mention watching them scramble to cover to the tune of losing more than $17.3 billion combined in a single day puts a smile on my face.

    Kudos to the little guy and gals who all banded together and formed an adversary that no amount of regulation would have ever been able to muster to check these hedge funds. Now they are able to see free markets being used against their unseemly short positions. Hope they enjoyed that ride.

    5
    January 29, 2021
    • Roger Schutte said:
      I would assume other hedge funds are coming in to trade against the short sellers. I wouldn’t put it past them to eat their own kind.

      5
      January 29, 2021
      • Check the trade volume of Feb and March low value puts on GME. Do you think this might be hedge funds buying back in again?

        0
        January 29, 2021
      • Thomas Larkin said:
        Indeed, and I see no problem with cannibalism among hedge funds.

        0
        January 30, 2021
  6. Jerry Doyle said:
    Berkshire Hathaway holds the number one position in Apple, Inc. of around 90B which is a little over 44% of its 13F portfolio. The second largest position is Ken Fisher Asset Management around 5B. Are these the institutional players playing in these short squeeze games and cashing in Apple to cover their losses? I doubt not. I question that Apple is down relative to this hedge fund short squeeze sell off.

    3
    January 29, 2021
  7. Cathie Woods of ARK the other day stated that they use AAPL more as a bank account than an investment right now. Maybe the hedge funds are doing the same.

    0
    January 29, 2021
  8. Michael Goldfeder said:
    While all of this is taking place in the market, Apple has opened its jaws like the sperm whale taking in plankton. Only Apple is bringing in shares at a price that will look ridiculous inside of a month at the latest.

    5
    January 29, 2021

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