Apple Fell Victim to Index Funds

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Trading can be an emotional roller-coaster, but trading or investing Apple ( AAPL) stock goes beyond emotional and enters into the realm of psychotic. Even people not in the market are getting concerned over the loss of shareholder value and the volatility in Apple's price. Have you ever thought about the spillover effect Apple's decline has had on semiconductor stocks? Some companies are at the brink of closing their doors.

Fortunately the selling appears to have subsided, and Apple may have found a bottom at $390; currently, it's trading about $20 above that low. The day after Apple's earnings call, Apple shares revisited that low, but only briefly. The shares then rebounded to where they are now.

This kind of volatility drives traders and investors mad trying to guess which way the stock will go next. Should they wait, add more, protect gains, get in, get out? There are countless permabull retail traders (little guys) that have been dumbfounded. Many bailed when it got below $400 because they couldn't take it any longer. Now, they're kicking themselves as Apple rebounds.

But it's not Cook's fault. It was really the result of index funds being overloaded with Apple shares, and they rode it all the way to the top, making huge profits. Then some of the bigger funds, along with a swath of insiders, decided to take profits, which is natural, but it manifested into a slippery slope, which caused a cascade of funds to divest, and they kept on divesting.

This was exacerbated by a confluence of things that mainly resulted in confusion and fear. Analysts smelled the fear, and so they jumped into action and used their superior intellect to explain to investors what was happening. And because they are analysts -- hapless, glorified reporters -- they mostly got it wrong, which did nothing but add to the fear, uncertainty and doubt (FUD). At the same time, also sensing an opportunity, Samsung jumped into action with a massive Apple smear campaign, which helped them sell a lot of cheap Galaxy phones and "phablets."

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