iPad Hype: the Norway Connection

So here we are.

Apple

(AAPL) - Get Report

is at all time highs. The stock is up another $5 today. The Apple/

PowerShares QQQ Trust 1

(QQQQ)

slingshot trade has generated huge returns.

We're waiting to sell until Applemoves against the market to the downside. But what is really going onhere? This stock action certainly isn't happening because mainstreaminvestors decided they wanted to buy in last Friday. This isn'tinvesting 101.

This is advanced hedge-fund action; so let's make aneffort to understand things from their point of view.

This run is happening because of Norway. About a month ago some third-party Apple reseller decided to put a link on its Website to allowcustomers to pre-order the

iPad

. It had to shut it down because thedemand was overwhelming.

We all know that Steve Jobs worries just asmuch about marketing as he does about the products themselves. At theend of the day, nobody actually needs an iPhone or an iPad in the sameway that nobody needs an In-N-Out Burger or a Tito's Taco.

Theatmosphere of standing in line to get your favorite product is veryimportant. The lines outside of Apple and

AT&T

(T) - Get Report

stores were essentialto the iPhone's success.

Part of the iPhone secret was that the phonehad to be activated at the point of purchase. This process tookapproximately five to 10 minutes and contributed to the lines. The iPaddoesn't require the same activation process. So how can Steve Jobsgenerate similar hype? He knows he won't have the same lines that hehad for the iPhone. This is where Norway comes in.

Apple doesn't need to do an iPad pre-order. But it's doing one onMarch 12. This allows it to make an announcement, telling the worldthat demand has overwhelmed its system and it won't be able totake any more.

This gets consumers anxious that they won't be able toget one and you know the rest. This is a controlled situation wherethe only outcome is a positive one.

Hedge funds do whatever they cando to eliminate risk in their short-term trades. This is an easy one. They see that Steve Jobs is going all out. He even appeared at theOscar's wearing a tux! He knows how big this iPad can be and Iguarantee he will use this pre-order as an opportunity to create aperception of scarcity.

If Apple goes in the opposite direction and decides to remain silentit would open up a window of opportunity for hedge funds to punish thestock on a perceived lack of demand for the iPad.

We'll be watchingclosely to see which scenario plays out. I've got a very quicktrigger to take my gains off the table but I'm not quite ready yet.It looks like we're headed into the peak of Apple hype.

At the time of publication, Schwarz was long Apple, QQQQ.

Jason Schwarz is an option strategist for Lone Peak Asset Management in Westlake Village, Calif. He is also the founder of the popular investment newsletter available at www.economictiming.com. Over the past few years, Schwarz has gained acclaim for his market calls on the price of oil, Bank of America, Apple, E*Trade, and his precision investing in S&P 500 option LEAPS. His book, The Alpha Hunter, is set to be released by McGraw Hill in December 2009.