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Is Apple Foreshadowing a Broader Market Top?


Apple sold off so much because of investor psychology.

Where Is Apple Headed?

Looking at a zoomed in chart of Apple, we can see a major technical pattern that helped identify its top. Combining that pattern with the extremely bullish sentiment helped identify the negative potential in the stock.

The left shoulder in April 2012, the head last fall, and then the right shoulder formed in the November 2012 rally broke down at the turn of the year.

The reason Apple sold off so much is investor psychology. Anyone that wanted to buy Apple already had, and all that remained were potential sellers that wanted to protect profits. This is a recipe for a swift decline, similar to the recent one with gold (NYSEARCA:GLD) and silver (NYSEARCA:IAU).

Apple continues to sell off toward its head-and-shoulders target, but it hasn't caught us by surprise as we were able to take advantage of Apple's March bounce with short term profit taking at its $460 price peak .

On March 24, when Apple's stock was at $462, we advised, "It is expected that this resistance will hold and Apple will resume its downtrend farther into the blue support zone where its head and shoulders target resides @ $360. The February price rise looks to have filled the gap formed at the January neckline breakdown. This adds value that the head and shoulders pattern may be legit and the target at $360 should be respected."

Apple has since fallen as low as $385 on its way down to that target.

For broader market holders, though, a similar topping pattern may also be forming on the Nasdaq large cap index, and that is a big warning sign.

The Nasdaq 100 Is Reflecting Apple's Chart

The next chart along with commentary, key price levels, and trade setups was provided with the warning, "A break of this level will also be a long term short signal as it confirms the pattern. We will cross that bridge if/when it occurs."

Not only is the media following the same script for the broader market that it did during Apple's peak, but the charts are also showing similar topping patterns.

The pattern is a big warning sign that the Nasdaq (NYSEARCA:IYW), and other equity markets such as the S&P 500 (NYSEARCA:SSO), Dow Industrials (NYSEARCA:DOG), and Russell 2000 (NYSEARCA:IWM) could be setting up to follow Apple's lead to the downside.

The good news is there are specific price levels that will tell us if the pattern is indeed playing out on the QQQ and other tech focused ETPs (NYSEARCA:TYH), just as it did in Apple.

We will also know this long before most "expert" analysts catch on to the trend change.

Editor's note: This story by Chad Karnes, CMT originally appeared on

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No positions in stocks mentioned.
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