Art Cashin: Apple May Have Become A 'Mini-Index' And That's Why The Stock Is Now Getting Crushed

Basically the idea is that Apple had become such a powerful force in people's portfolios during the last few years, that just the return to normalcy requires ongoing selling.

There is also another, less pervasive theory about Apple. It suggests that Apple may have become a kind of mini-index, which is now being unwound.

The very heavy correlation among stocks and the indices had forced many active managers to become closet "partial indexers" for survival. They would use an index, usually the S&P, as a base and then enhance it with "active" personal picks.

Jump forward now to the last three years when Apple became a dominant force in the market, rising day after day in an almost parabolic fashion. That, says the thesis, led some managers to try to strip out the Apple energy. They bought Apple and shorted a basket of stocks against it. That worked fabulously well when Apple soared relentlessly toward $700 and more. But, when Apple stumbled, the arbitrage had to be undone. Thus, the managers would become steady sellers in Apple and buyers of the stocks in the basket. The proponents of the thesis didn't have much hard data or manager names but it made for interesting cocktail speculation over the last few weeks.