Apple (AAPL) at Critical Support Editor: Over the past 10 years Apple has risen 13,687%. Meanwhile, gold, which is frequently referred to as being “in a bubble” has risen around 400% over the past 10 years. There can be little doubt that Apple got considerably overbought and that a correction was long overdue. Even so, the stock is still up 25% year to date.

Apple (AAPL) is always in the news, but probably more so since it began falling from its all-time high of 701.90 in September. Since then performance has been abysmal, and today AAPL has reached critical support.

Let’s take a look at a one-year bar chart of AAPL, a very busy chart. First, let’s note that our mechanical Trend Model signal switched from BUY to NEUTRAL (move to cash) at the close (607.07) on 10/19/12.

In the last two weeks, a reverse pennant formed, and today it resolved downward as technically expected.

Next, I have annotated a head and shoulders pattern. Many (most?) technicians might have a problem with that because the formation is not at all symmetrical. I admit that I am taking liberties with the concept, but I think it is a useful template in this case. The neckline is drawn across the May and November lows. Today’s decline has price testing the neckline. If the neckline is violated, the minimum downside projection would be about 300.

I’m sure that many people would think that 300 is completely unreasonable, but looking back just a year and a half we can see that AAPL was at 308. The really unreasonable part of the chart below is the rapid advance from 400 to 700. Did the fundamentals really improve that much? My guess is that the advance is evidence of Apple mania.

Since the September top Apple has been disappointing its fans, and the November bounce failed. Now there is the potential for a double bottom (November and present), if the neckline support holds. This is entirely possible, but it is not a time to try to pick a bottom.

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