What was behind Thursday's Apple stock flash crash?

Shares hit by huge selloff in early afternoon before rebounding

First, the facts. Then some perspective. Finally, we'll get to the speculation.

Shares of Apple (NASDAQ: AAPL) experienced a sudden selloff shortly after 1:30 p.m. Thursday, dropping shares to $348 from $355. Volume spiked during the flash selloff, as you can see from the chart below:

EDGAR Online

By the time the final trading bell rang, Apple was at 354.54, down 3.62, or 1.01 percent, from Wednesday's close of 358.16. Volume for the day was 33.1 million shares, nearly twice the volume of any other day in February.

(Also see: The Verizon iPhone - where are the lines of customers?)

Perspective: The spike only dropped shares 2 percent, hardly a cause for alarm. Indeed, Cisco Systems (NASDAQ: CSCO) shareholders would have killed for a loss like that today. Instead Cisco lost more than 14 percent of its value, thanks to a weak sales forecast and shrinking margins.

Also, while the volume of Apple shares bought and sold was nearly double any other day this month, it's not unprecedented. On Jan. 18, the day after chief executive Steve Jobs announced he was taking an indefinite medical leave of absence, 66 million shares were traded, and another 40.5 million moved the day after. Granted, that was extraordinary news. But Apple shares easily do more volume than they did Thursday during the run-up to and on the days after the company reports earnings.

Finally, in terms of perspective, Apple also hit an all-time high Thursday of $360 per share.

Now, for speculation: What caused the Apple flash crash of Feb. 10, 2011? Could it have been the news that lines outside Verizon stores for Apple's iPhone 4 -- on sale to the general public for the first time Thursday -- were disappointingly small? Maybe, but that strikes me as awfully reactive of investors. The early afternoon selloff was sharp and hard, as if someone had suddenly yelled "Fire!" in a building.

Fortune's Philip Elmer-DeWitt quotes an analyst who discounts this theory:

"The selling is not normal just for negative news," wrote Bullish Cross' Andy Zaky in an e-mail. "There was a huge spike where dollars were being skipped in the selling. I saw Apple tick from $351.70 to $349.00 within seconds. There's something else. The selling was not normal. That's for sure."

DeWitt then cites an article on Stock Tick Tock, which reported that rumors were floating around Yahoo message boards and Twitter that Jobs was in the hospital. Apparently he's not.

Were Apple shares temporarily gamed by shorts? It's beginning to look that way. If so, floating a nasty rumor about a guy with seemingly serious health problems just to make a windfall profit in the market is a pretty sleazy thing to do. Money does strange things to people.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

ITWorld DealPost: The best in tech deals and discounts.
Shop Tech Products at Amazon