When Apple (AAPL) released earnings that beat expectations, the stock rose over 5% and hit a market cap of around $990 billion. With just a 1% price gain, AAPL could become the first publicly listed stock with a trillion dollar market cap.
These whole numbers, like the Dow hitting 30,000 or the S&P hitting 2500, are for the most part interesting and, for average investors, actually pretty unimportant. Some financial analysts will emphasize the “psychological effect” of hitting these round numbers, but those effects tend to last a day or two, and since human investors focus on the long term these days (leaving day trading to the machines), the psychological effects aren’t important enough to spend much attention on.
But there is an undeniable technical issue at play. When AAPL got its big earnings beat, the $1 trillion level was a clear resistance, and the stock failed to reach it. While most are confident that AAPL will get to that level and stay over it soon, the reality is that the technical resistance of such a milestone is likely to remain a reality that has real financial implications.
So what are those implications?
With that artificial and admittedly arbitrary resistance level in place, there are sheer technical limitations to reaching a certain price point—and that, in turn, should be priced into call and put options. If it isn’t, there’s a clear trade to take advantage of the psychological resistance for a rare short-term trade that has a lot of empirical data and statistical logic behind it.
There is also the broader economic impact. Remember, AAPL is a huge company. Its near-$1t market cap is 4.3% of the S&P 500’s total $23t marketplace—and for one company to be near 5% of the entire stock market is a very big deal. That could mean the technical resistance for AAPL is, in a way, a technical resistance for the S&P 500. That resistance could be read through as a more volatile or risk-averse market, impacting index futures, options, and the stock market itself. All because of a misread of a simple technical glitch based on an arbitrary number. That, in turn, could be a “buy the dip” contrarian opportunity for investors who get it right.
The real challenge here is translating the simple math of the $1t market cap and the chaotic emotions of the market participants playing against it with the very complex math of the statistical and empirical evidence of how markets respond to such situations in most environments. Unifying those elements could result in a comprehensive and fact-based approach to trading on what is, objectively speaking, really a non-event in the long term.
And this is how quantitative finance works, not just for AAPL but for everything.