Written by William Kurtz
Apple shares Closed today (13 September 2013) at $464.90, Down $7.79 on the day and $33.32 on the week. In so doing, prices crossed beneath the Neckline of a "Head & Shoulders" top formation, which is a bearish signal.
The first chart is an updated Weekly chart of Apple, demonstrating that peaks and rollovers in price and in the indicators suggest that the operative trend has switched from Up to Down.
The second chart of Apple is one that I have shown earlier, updated through today.
Here's the operating principle of the "Head & Shoulders Top" Pattern:
- Establish a "Neckline" by connecting a Low at the "Left Shoulder" with a Low at the "Right Shoulder".
- Then extend it outward in time.
- Then establish a vertical line downward from the top of the "Head".
- Along that vertical line, measure the price distance from the top of the Head to the Neckline.
- Mark the price at the intersection of the vertical line and the Neckline.
- Repeat that measurement downward from that intersection along the vertical line.
- The result of that measurement is the Price Target.
A putative Head & Shoulders Top formation requires confirmation before it can be accepted as real. "Confirmation" includes:
(1) a drop in price from the Right Shoulder down through the Neckline;
(2) unless prices simply continue heading lower, a "retest" of the Neckline;
(3) at the "retest," a rejection of prices downward at the Neckline; or
(4) if prices rise above the Neckline, a quick return below the Neckline.
It is that latter circumstance which applies to the price of Apple shares now: They have "retested" the Neckline; they have risen above it briefly; and today they have fallen beneath it - all as shown on the second chart.
Therefore, I consider the "Head & Shoulders Top" pattern to have been validated.
The implications are twofold:
- One, this is a bearish development;
- Two, there is now an enhanced possibility that prices will work their way down to the Target, which is $317 per share.
The bearish implication of the confirmed pattern is amplified by a bearish unorthodox Japanese Candlestick Reversal Warning Pattern which has arisen during the past several weeks on the Weekly chart of Apple shares. This pattern is an imperfect example of the "Sapporo Snowball," which is a variation of the well-known (and bearish) "Evening Star" Reversal Warning Pattern.
The third chart is a close-up, showing this imperfect (but nevertheless valuable) example of the "Sapporo Snowball" in detail.
We can see, first of all, that prices have crossed below the Neckline. The pattern consists of a tall white Candle, reflecting an "Up" week; then three small "Stars" at or near the top of the white Candle, all of them sporting small "Real Bodies" reflecting relatively limited price variation and elements of indecision; and, finally, a tall black Candle, reflecting a "Down" week and a reversal of trend from Up to Down.
A perfect "Sapporo Snowball" would locate the three small "Stars" above the tops of the Real Bodies of the tall black Candle and of the tall white Candle; the middle "Star" would have a smaller "Real Body;" and the tall black Candle would extend lower.
Even so, this imperfect example clearly shows bearish inclination; and for that reason it has value.
I think that the possibility of a decline in the price of Apple shares has been enhanced today.