Estimate Of Volume Affected By The Sudden Margin Increase On Apple Inc.

I posted in my real-time chat yesterday in the morning that the sudden margin increase on Apple will force a significant amount of stocks to be liquidated and that amount can be estimated. It is not a straight forward formula. Instead we can approach that with classic chart pattern.

Volume exhaustion on a selloff is a well known classic way to tell if enough long holders are removed from the market. Classic threshold is 3 to 5 times the average daily volume. Before yesterday, Apple’s average daily volume as reported from Yahoo Finance is about 20 million shares. That puts the volume exhaustion estimate at 60 to 100 million shares.

But that is just the normal, end of a selloff signature pattern. This time, we have a structural change induced by one of the clearing firms. Notice it is not a general increase of margin requirement across all clearing firms. As long as other clearing firms are not jumping in on this change, it is just a market shock.

Hence the volume reflected would be lower than the normal exhaustion pattern.

As of yesterday approximately 40 million shares were changed hand.

This morning another 10 millions already changed hands.

The impact of the margin change is almost over.

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