AAPL Descending Triangle

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AAPL looks to be forming a descending triangle which projects a move down to $425 if completed.

The daily chart of AAPL above shows a horizontal support line at roughly $500 where 3 recent swing lows occurred on the price chart.  The lower swing highs over the last few months create a descending triangle formation on the chart.  A close below the lower boundary would trigger the pattern and project a move to about $425 based on textbook projections of the widest leg of the base of the triangle projected down from the breakout point.

Also of note is a large unfilled gap up from earnings in Jan 2012.  The descending triangle projection ends near that gap up, so that area seems to be a likely next target for AAPL if it breaks to lower boundary of the triangle.

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Continue monitoring the Nasdaq for a head and shoulders top formation.  The look and volume pattern is roughly correct at this point.  It would take a close below the neckline (the upsloping line drawn on the chart) to trigger the pattern.  The minimum price projection would put the price back near the Oct-Nov 2011 lows if completed.

It will be interesting to note large trader response to last Wednesday's price jump when this weekend's CoT report comes out.  As of last week's report, the "smart money" is at a record net SHORT position on the Russell 2000 contract, and the major index combination still showed smart money heavily net short near multi year extremes.

The smart money has tried to compress the market between the Sept high and the Nov low.  A break of either price level is likely to lead to a continuation move in the same direction.  If prices on the Dow and S&P 500 move above the Sept high, then it could lead to a rather extended period of short covering by the smart money.  Such occurrences tend to lead to low volatility price advances for several weeks.