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Brief mania over Apple shares

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Panic-buying…euphoria…mania

Call it what you want, but for a few trading sessions Apple (AAPL-Q) shares surged to an all-time high -- driven by an irrational herd mentality investors exhibit time and again.

It wasn't a mania in the classic sense, like gold in 1980, which doubled in four months and captured the broad public's imagination; or tech stocks in 2000 when the bubble finally burst after several years of surging higher and -- at the end -- had the proverbial shoeshine boy giving stock tips. No, Apple's brief trip to the stratosphere was only sixteen sessions in the making and triggered by its spectacular earnings report in late January

The trading action in Apple on Wednesday was fascinating. Over 53 million shares changed hands, more than three times the average daily volume. Volume in options contracts was also much higher than usual, equaling over 100 million shares. Apple's stock gapped up at the open from the previous close of $509 US to over $526. This despite the fact the chart was already showing signs of going parabolic.

At that point, it was only a matter of when Apple shares would stop defying gravity, not if. Then the inevitable happened. The stock had an intra-day reversal and finished down around $497. As I write this, Apple shares are back above $500, but down slightly on the day.

Investors were chasing Apple higher to reflect the newly-revealed earnings power of the company and to get in on what may be Apple's first-ever dividend, which was obliquely hinted at this week by CEO Tim Cook.

But the recent run-up in Apple's stock repeated a pattern seasoned investors and those capable of removing their emotions from the equation have seen many times before: a temporary mania.

Yes, Apple is a powerful machine of a company and it will likely hit even higher levels down the road. But after a move like that, history tells us through past meteoric rises of other stocks and asset classes that everyone will calm down for a while. Apple's stock will likely go sideways to down for a few months before it can consolidate these rapid gains in order to start a new leg higher.

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