For Apple Inc. (NASDAQ:AAPL) Investors Price Matters

August 04, 2015, 11:08 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Something extremely important has begun to happen to shares of Apple Inc. (NASDAQ:AAPL) and investors need to take notice.  Although the formal discussion at stock traders daily started when the stock was testing longer term resistance, I also issued a public statement and formal research through Thomson first call, information I also summarized for MarketWatch and that has bearing on this update.

First, my first response to any buy, sell, or hold questions is to look at the technical parameters and then look at the fundamentals afterwards.  When Apple fell on the heels of their recent earnings announcement the stock tested a support level and my most recent article suggested that the stock could bounce temporarily but the risks were high that the stock would stall and then reverse down again.  The test of support was the basis for the bounce that indeed took place, but it was the fundamentals and the future growth rates for Apple specifically that raised the additional red flags.

Although I did not address this specifically in the article, I did respond to questions about this subject, and now that growth rate needs to be talked about in more detail.

To the naked eye Apple looks relatively cheap.  Someone might look at it and say, the stock only trades at 13 times earnings and that's not bad, but that observation is sophomore.  PE multiples can only be determined to be attractive or not when compared to growth rates and growth rates at Apple are coming down aggressively.

Although this year Apple is expected to grow by 22%, next year, and this was before china's problems, Apple is expected to grow by only 7.5%.

In my formal research my warning suggested that if growth rates were expected to deteriorate more than that the stock could come under severe pressure.  The multiples were already high, relative to future growth at least, and if analysts became concerned about the sustainability of that reduced growth rate my warning was that it could get even worse. 

To that we should also recognize that the only reason Apple grew at the rate it grew last year and this year was because China mobile came online.  That was a huge win, and it propelled growth rates, but growth like that is not sustainable.  In fact, arguably, the growth rates will stall from China even without the slower Chinese economy taking a toll just like they did here in the United States.

Of course, the argument can always be made for new products and services, but nothing is going to match phone sales and the stall in growth, which also can be referred to as relative saturation, is something that's obvious to Wall Street.

With a growth rate that was already expected to fall to 7.5% when China did not look as awful as it does today analysts are already questioning the ability of Apple to me that already reduced growth rate, and that is where the problem exists.  All other arguments aside, it is the reduced level of the already reduced growth rate that is causing the stock to slide.

Given the probability of a relative saturation growth is also expected to be subdued beyond next year as well, but none of this has anything to do with the quality of Apple as a company.  Apple is a good company with products that have revolutionized the market and they will likely continue to produce some of the best products on the street, but investors are less concerned about the quality of a product than they are about the growth of the company they are invested in.

The text I have provided here can open the door for discussions, and it probably will, because future growth rates can always be debated and the impact of new products can as well, but the technicals don't lie and if price matters the test of longer-term resistance was a red flag and the break below support levels were as well.  In my opinion price matters more than anything else. 

In my opinion you should stop listening to the noise and start respecting price.

Support and Resistance Plot Chart for

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