By Philip Elmer-DeWitt
October 28, 2010

Investors tracking a flurry of late trading Wednesday think they smell a rat

One of the regulars at Investor Village’s AAPL Sanity board who calls himself (or herself) AnAAPLaDay was curious what triggered the furious trading in Apple (AAPL) shares that led to a five-point drop in the space of a minute at 4:49 p.m. Wednesday.

That’s two minutes before ran this news alert:

That 26% was a typo. The correct figure was 36%. And as Kaufman Bros.’ Shaw Wu points out in a note to clients issued Thursday, there’s no difference between the gross margin estimate Apple issued in its quarterly earnings call on Oct. 18 and the SEC Form 10K issued Wednesday.

No change. No news.

But an alert on the business wires is all takes to give traders using computerized rapid trading techniques the edge they need to move the market one way or another, especially in thin after-hours trading.

In a post entitled “Anatomy of AAPL stock take down,” AnAAPLaDay describes what seems to have happened next.

If I had to guess some party is putting in gap asks at a low price and then buying it back via another party (wash sale fraud).  They then proceed to flood the market with 100 share blocks at a furious rate keeping the price there…

See the gap that  happens at 16:49  with only 100 shares of stock!  Someone decided to sell their stock at a limit order price $2.40 lower than market price and then 100’s of small orders a second also decided to sell theirs at the same drop the same minute?

This is highly ordered computer order stuffing manipulation of some party being on both the bid and ask of the same wash sale trade.  Someone is taking advantage of the lack of liquidity in the extended hours to greatly manipulate Apple in the after hours.  It is likely there is a connection to the article. This smells like a setup.

Oh, and “One more thing!”

The gapped takedown was at 16:49 EST.  The article came out at 16:51 EST.  How could this happen unless the stock market manipulators knew the article was coming out 2 minutes later????

I think this bit of info can identify the party responsible. Perhaps the writer for gave them a call 2 minutes before publishing the erronous breaking news article?  Or perhaps the computer started the algo trading 2 minutes early.  Obviously it was not the public panicking as CNBC and others have reported since the 26% misprint gross margin had not even hit the wire.

AnAAPLaDay has provided a minute-by-minute record of after-hours trades between 4:43 and 4:49, should anybody at the SEC care to investigate.

UPDATE: CNBC didn’t help matters by flashing a Breaking News alert, as if the 36% gross margin was actually news. Below, a screengrab, courtesy of reader J. Hall, of the version that appeared on CNBC’s iPhone app:

NOTE: Earlier versions of this story attributed the post to the wrong writer at the wrong board. Apologies all around.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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