Apple unexpectedly fell on rebalancing day. Who is to blame?

According to Zhitong Finance and Economics APP, last Friday, Apple (AAPL.US) was supposed to be the big winner in the major stock index quarterly adjustment, with index fund rebalancing expected to boost stock prices. In fact, for most of the day, this was indeed the case. However, a huge change occurred in the last 10 minutes before the close. Apple quickly dropped more than 2% from its intraday high and closed in the negative territory, surprising market observers who speculated on the reasons for the sudden reversal.

Market order flow, which indicates the instructions for brokers to buy or sell stocks at the closing price of the trading day, showed an unusually large imbalance, indicating a net sale of 30 million shares. This is more than half of Apple's average full-day trading volume in the previous three months, and all of this volume was sold off in the last few minutes of the week.

The unexpected massive selling pressure came as a surprise because after Warren Buffett sold a large amount of Apple stock in the second quarter, funds tracking major stock indices were expected to be major buyers of Apple stock on Friday, meaning the company's weight in many indices would significantly increase.

One theory is that some actively managed funds may have taken advantage of this predictable liquidity to reduce their holdings. Matt Maley, Chief Market Strategist at Miller Tabak + Co., said, "Perhaps some investors wanted to take advantage of the opportunity to sell a large amount of stock during the market rebalancing. They know that buying power will significantly increase, so this would be a good time to sell a large amount of stock without causing a significant drop in the stock price."

While Apple closed down 0.3% on Friday, its overall stock price rose by 2.6% last week. On Monday, the company's stock price initially fell by 1%, then gradually recovered but still closed down by 0.76%. As of the time of writing, Apple's stock price fell by 0.19% after hours.

Another possibility is that arbitrage players may have bought Apple stock before the rebalancing event. According to Piper Sandler & Co., the Apple rebalancing event is expected to create $35 billion in passive fund demand. Prior to last Friday, the stock had risen for three consecutive trading days, with an increase of nearly 6%.

While the market is becoming increasingly crowded, buying stocks with rising weights in major indices and selling those with falling weights has always been a reliable strategy for many in the hedge fund industry.

Mohit Bajaj, Director of ETFs at WallachBeth Capital, said, "Arbitrageurs try to prepare in advance for various index events because they believe there will be volatility at the close on rebalancing day." "Although it's getting harder, it still happens."