Beware of AAPL and IT in general

October 31, 2012, 11:39 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Arguably, I have always been a little early in my identification of major turning points in the market or individual stocks.  I recently went through this with a client and realized that although our trading models are quite precise, my anticipation of major market moving events or major company transitions were almost always a few months early.  One might argue that being ahead of the curve allows you to prepare for what lies ahead, but Wall Street is very shortsighted and unless your words turned out to be right tomorrow some investors will be dissatisfied.  The street is more concerned with what you can do for me now rather than what you are preparing me for tomorrow. PROFIT FROM THESE STOCKS TODAY!

My past recommendation for Apple (NASDAQ:AAPL) is a case in point.  I have warned about competition, I have warned about the inability to continue to innovate, and I have warned about margin pressures.  Now, I have more to talk about, but what is happening now is not the real concern, it is just a byproduct of the concern.  When major executives leave a company they are doing it because they no longer find the opportunities in that company to be as attractive as opportunities they might find in other places.  Apple had an amazing run, the best minds wanted to be a part of the operation, but Apple has made some very bad decisions recently and they are losing traction.  This is exactly what I warned about months ago.  Review our Trading Report for AAPL if you would like specific strategies.

It doesn't matter who you are, how big your company is, or the reputation you had yesterday, when you sell into a consumer market you are subject to the fickle nature of consumers themselves.  Just like the shortsighted view of the market, consumers are all about what you did for me lately.  In this particular instance many of the consumers of Apple products that I talk to have a reason to be disgruntled.  The maps issue and the restriction on YouTube are just the tip of the iceberg, because many people feel as if Apple will soon try to monopolize everything, restrict their access to some of the best things, and no matter how cool a product looks anyone who feels restricted will not feel comfortable.

Of course, changes can be made, restrictions can be lifted, improvements can come, but the fickle nature of the consumer when coupled with high levels of competition make it very hard to maintain the growth rate Apple has realized unless the company offers a product that is cutting edge, and almost perfect.  I would further argue that the company needs to be operating in a similar fashion as well in order to maintain that growth rate, but from what we are seeing key executives are leaving and the competition is fierce while product setbacks exist.  The combination of these three elements presents a situation for Apple that could eventually be defined as a turning point for the company.  In the consumer space, all they need to do is open the door and the competition will come running in, and Apple seems to have just opened that door.

What I was saying before is now transpiring, Apple is not the same company it once was, and like I have been in many other ways, I was a little early here as well, but I am not wrong.  Apple is facing serious challenges, it is not the company that it was, continuing to innovate at the same rate or even close to that previous rate is extremely unlikely, and the growth rate of the company will likely decline substantially going forward.

I would be particularly concerned about both Apple and Seagate (NYSE:STX) going forward because without these two companies the information technology sector in the second quarter earnings season only grew by 0.53%.  If Apple and Seagate (which was directly influenced by Apple) start to feel the pressure technology as a group is going to get hit.  That means, beware of XLK (NYSE: XLK) too.  There are better ways to make money in this market. 

If you would like to know what else I have been a little early about recently please visit Stock Traders Daily for a firsthand look.

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