Market Manipulation bites Apple Inc.

Shares of Apple (AAPL) sank almost $10 in regular market trading (down almost 7%) on news that appeared to be no news at all. An article this morning on TheStreet.com (Link) referenced a "research note" from Miller Tabak & Co.

The note referenced chatter between Goldman Sachs traders that Apple had cut production on iPhone from 9 million to 4.5 million units. There was also further speculation that Apple had cut production in their iPod line also. For a company, as hush-hush about its supply-demand dynamics, Apple really let something slip, or did they? Where did this rumor come from?
With earnings barely behind the company does this make any sense? Earnings showed over 20% iPod growth and reiterated a sales goal of 10Million iPhones in 2008, so why the apparent production cut? I think the other question that has to be asked is what is really going on here? And who is Miller Tabak and Co.

Directly from the website of Miller Tabak and Co. one reads the following excerpt.
"Miller Tabak + Co., LLC (MT) is a twenty-four year old institutional trading firm specializing in the discrete handling of stock purchases and sales, portfolio rebalancings and listed options. We act as agent on behalf of sophisticated institutional investors, executing trading and hedging strategies imaginatively and aggressively."

I for one would call creating rumors out of speculative trader talk as both imaginative and aggressive. With the stock trading down heavily in the morning there was some talk out of Miller Tabak and one analyst, Peter Boockvar, in particular who noted that no research note was issued and simply gossip was passed down. If that's all it takes to shave almost $8Billion in market cap from this leading technology company than the market is more fickle than most would like to even imagine.

Granted the overall slide in technology stocks late in the day only compounded the problem but the seeds of doubt had already been planted. And on a day where Apple announced it had sold its 3Billionth song on iTunes.

Taking a hard look at this "research report" can point an investor only one of two ways. On one hand, if the rumors were in fact totally made up to stir selling so heavy-hitters can buy in at lower prices and extend profits further into the holiday season then that's complete and utter market manipulation. On the other hand, if there's any shred of truth to a production cut for iPhone, then maybe Apple's in serious trouble. But for this to come out only days after earnings with the company reiterating its sales goals for all of 2008, make little to no sense. The company did say several times during their conference call that product transitions would take place this quarter, which to several analysts meant either new iMacs, new iPods or both. So if Apple's cutting production on some iPods lines how could that be considered a bad thing? If this is to lead to a model refresh of the top of the line video iPod, or mid-range iPod nano or both, common sense would dictate that this would spark sales and growth rather than stunt it.

Perhaps the worst is not over yet in this drop from inflated highs for Apple stock, but those faithful Apple investors who believe in the company products and growth strategy should remain patient. And in fact have to use these opportunities to add to current positions so they too can play the game and be competitive with the "Big Bad Wolves" on the street.

Disclosure: Author is long AAPL