NEW YORK (TheStreet) -- Every December traders are fixated on two things: protecting gains and adjusting portfolios based on next year's projections. And as traders protect and project, that can sometimes cause volatility in individual stocks. And that volatility can be misleading for value investors.
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There are so many traders loaded to the gills with Apple stock that if it goes down, those traders may end the year in the red.
If there was a fundamental change in Apple, we would have seen a major move in the Nasdaq (QQQ) and the S&P 500 (SPY) , but that didn't happen. There was no bad news about the company. The price drop had nothing to do with bad sales or a firm lowering projections. It was all based on price action.
We also tend to see some of the bigger portfolio winners start to either make moves higher or drift lower without any real reason. This is because traders are either adding to winners that they believe will be even bigger next year or they are moving them out of their portfolios because they believe the stock may have run its course.
Investors trading major indices such as the S&P 500, the Nasdaq, or futures for those indices should not bite on rapid spikes in individual stocks as the major indices tend not to follow them this time of the year.
Throughout December, we will continue to see an increase in volatility in individual stocks, but low volatility in the S&P 500, Dow (DIA) and Nasdaq. Traders and investors should not be fooled by watching individual stocks for leadership. At this time of year, it's better to focus on defense and managing risk through the end of the year.
If we start to see the S&P, Dow and Nasdaq react more aggressively to some of these intraday moves in stocks, then something bigger may be happening and we could see the indices start to get an increase in volatility. Until then, don't be fooled by fleeting price changes in key stocks in your portfolio.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.
TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate APPLE INC (AAPL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, notable return on equity and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
You can view the full analysis from the report here: AAPL Ratings Report