Historically viewed as one of the crown jewels of the stock market, Apple is adjusting to its new role as a lightning rod for bearish tech speculators.
Short interest on Apple has climbed by $1.3 billion since May 15, while an exchange-traded fund tracking the tech sector has actually seen short interest fall by $316 million, according to data compiled by financial analytics firm S3 Partners. Apple is now the third most-shorted company in the world, trailing only Tesla and Alibaba.
The past two days have been particularly fruitful for Apple pessimists, with shorts making more than $500 million in mark-to-market profit amid a 6.2% stock decline.
The company came under pressure on Friday following a report from Bloomberg that the coming iPhone 8 wouldn't be as fast as its rivals. The company's woes continued Monday after Mizuho analyst Abhey Lamba downgraded his buy rating on the stock to a hold, citing limited upside.
While Apple's decline played a large role in dragging the Nasdaq 100 Index down 3% since Friday, the fact that investors are building bearish positions on the company while reducing bets against the broader tech sector shows that they're getting increasingly worried about Apple-specific fundamental issues.
"Apple's increase in short interest is not a case of the tech tide lifting all boats," Ihor Dusaniwsky, the head of research at S3, wrote in a client note. "We can see an obvious divergence in mid-May."
Considering Apple's outperformance relative to the tech sector, it's not entirely surprising that it's a favorite target of speculative bears. Through last Thursday, the company's stock had surged 34% in 2017, compared to a 8.7% increase for the S&P 500.
Still, compared to the other stocks in the so-called market-leading FAAMG group consisting of Facebook, Apple, Amazon, Microsoft and Google, the iPhone maker is attracting more skepticism. Short interest in the four companies has climbed just 5% since May 15, compared to a 17% increase for Apple, S3 data show.
"Tech short sellers look to be targeting Apple as the near term underperformer in the sector," Dusaniwsky said. "It will be interesting to see if this is a longer term trade with short interest remaining at or above the $9 billion level or if we will see an avalanche of buy to covers to realize short term profits if Apple's stock price rebounds after this short term price slump."
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