Apple and Microsoft confound Nasdaq 100 rebalancing expectations

“When the Nasdaq 100 rebalancing was announced before the April 5 stock market opening, the expectation was that opportunities might arise as we approached the May 2 implementation, based on April 29 closing prices,” John Tobey writes for Seeking Alpha. “The best possibilities seemed to be an Apple (AAPL) sell-off (its allocation was being significantly decreased) and a Microsoft (MSFT) run-up (being significantly increased).”

The strategies were straightforward:
• Use price drop to build or expand an Apple position.
• Use price rise to reduce or liquidate a Microsoft position.
• Hedge: Buy Microsoft and sell Apple (then reverse the positions when the rebalancing effects occurred).

Tobey writes, “A key problem, particularly for the hedge, was that both companies would be reporting earnings: Apple after the close on April 20 and Microsoft after the close on April 28. Earnings could more than offset any rebalancing moves, so that left April 29 and May 2 as the only viable dates.”

Read more in the full article, which includes a graph shows how the two stocks performed, from just before the Nasdaq press release to May 2’s close, here.

Related articles:
Analyst: Buy Apple stock on any Nasdaq rebalancing weakness – April 5, 2011
Apple has grown so huge, Nasdaq-100 index to undergo rare rebalancing to reduce AAPL influence – April 5, 2011


    1. If think Apple was overweighted in the stock when the value was lower. Since it has grown so much in value it ended up being close to 50% of the index.

  1. How should rebalancing affect the stock value? The percentage that the stock represents in the Nasdaq 100 has no bearing on the success of the company.
    Maybe people are smarter enough to know that Apple is doing well and M$ is plodding along as usual.

  2. BS to cover their ASSes. The rebalancing announcement was leaked to crooked firms like Goldman, 2 weeks before hand. That’s when Apple’s dropped to 320 and that’s why it didn’t drop the week before and on May 2nd. Pure and simple thievery.

  3. An index is not a great portfolio, when it’s forced to dump its biggest winner and load up on a hopeless loser.

    A more compelling comparison is Apple’s stock price significantly lagging their revs and earnings in the last year. Opportunity.

  4. The reason rebalancing affects the stock price is because Index and ETF funds have to by law allocate their share ownership according to the weighting percentage the stock takes up in the Naz 100. Apple made up 20.5% of the Naz because of it’s high market cap. It was reduced to 12% of the weighting. That caused enormous selling pressure from these funds, driving the price down to 320 and keeping it down thru May 2nd. The rebalancing was leaked to big Money Managers 2 weeks ahead of the official announcement. Screwing the retail investor.

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