The Apple stock chart has traced a head-and-shoulders topping pattern. This is a well-known and well-followed reversal pattern in traditional technical analysis .

The pattern sets Apple’s AAPL  downside target at $340. A picture is worth a thousand words, the chart tells the story.

Please click here to see the chart.

The pattern

The pattern consists of a left shoulder, a head, and a right shoulder. In Apple, the left shoulder was formed when the price pulled back from about $650 to about $530. Please see “ Dangerous Apple chart pattern into iPhone 5 launch .”

The head was formed when the price moved above the peak of the left shoulder and subsequently fell down close to the bottom of the left shoulder.

After the head formation, there was another reaction rally that peaked lower than the top of the head and formed the right shoulder.

The line on the chart connecting the bottom of the left shoulder, the head and the right shoulder is known as the neckline.

In traditional technical analysis, when Apple price broke the neckline, it confirmed the top.

The downside minimum target is the distance from the neckline break equal to the distance from the head peak to the neckline. By this measure, the first downside target is about $340.

Relax, not many technicians are rich

If you are an Apple shareholder, relax. There are thousands of good technicians, but not many have become rich by consistently generating profits in the market. However, since many investors follow traditional technical analysis, it pays to know what they are thinking….Read more at MarketWatch

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