When we last examined AAPL [see: Harmonics are Your Friend] it had fallen 167 points (23.6%) in less than two months and appeared to be nearing an interim bottom — meaning it was due for a bounce on its way to lower prices.

It stabilized for a few days, but joined in when the overall market sold off the following week — shedding another 4.8% when the S&P 500 dropped down to tag our 1344 target [see: Charts I’m Watching Nov 15.]

Since then, AAPL has climbed back nearly to our primary target of 600 — adding 19 points  to reach 590 yesterday.  It was the single biggest daily gain since last May, and has many Mac enthusiasts reaching for the buy button.  Is the worst over, or was this just a bounce on the way to lower prices?

Like the broader market, AAPL has reached a do or die moment.  There are channels going back to the early days (1983) that look like they maxed out at the 705 high on September 21.  The two largest channels, shown below in red and white, have each controlled prices pretty effectively long-term.

But, it’s the small purple channel that dates back to 1999 that has really guided prices most effectively since AAPL traded in single digits.

Regardless of which long-term channel ultimately proves superior, smaller parallels of each of them have been very influential over the past several years.  And, if we layer in smaller scale channels, the stakes are pretty clear.

Here’s a close-up:

Several things strike me about this chart.  First, we are clearly back-testing the 25% line on the purple channel.  It’s been 3 1/2 years since we last tagged the bottom of the purple channel. Every back test is a moment of truth, as prices which recently fell below a key point attempt to retake the high ground.

AAPL spent Oct 04 through Sep 08 in the upper half of the purple channel, and ever since has been mired in the bottom half.  It last tried to retake the mid-line on April 10, after a furious 77% run in 4 months — an attempt which failed.

Though prices have moved higher since, it’s been at the expense of standing within the (albeit rapidly rising) channel.  Prices recently fell below the 25% line on Nov 7, gapping down that morning.

We’re now approaching the channel line from below.  The previous support is now resistance.  A reversal here could quite likely spell a return to the channel bottom — which will be around 434 at the end of the year when the S&P 500 is nearing its next low.

The other standout feature is a battle setting up between the falling white channel and the completion of a bearish H&S pattern. If prices stay in the channel another couple of months, they will reach the bottom rung of the yellow channel and thus complete a H&S pattern targeting around 300.

The shorter-term channels I’ve inserted each have their own pros and cons.  The next couple of weeks should provide some clues as to which can be counted on.  In the meantime, the harmonic picture helps a bit.

In 2011, the picture was quite simple: a Crab Pattern (in yellow) followed by a Butterfly Pattern (in purple.)  Each produced a strong reversal within a few points of their completion and adhered to pretty well-established channels.  The only real surprise was that the SPX high (the asterisk below) didn’t at all line up with AAPL’s.This time, the picture is somewhat similar.  AAPL easily overshot the 1.272 of the 644 to 522 decline (Apr 10 – May 18) at 677 before reversing to around the .500 Fib level.  It came within 14 points of completing a Butterfly Pattern at 719.17.

The subsequent sell-off to 505.75 accomplished essentially the same thing in the opposite direction — coming within 19 points of the 1.618 extension of the 570 to 705 rise at 486.53.

Note that 486 is spitting distance from the purple pattern’s 1.272, the white pattern’s .786 and the yellow .618.  Intersecting patterns like that increase the odds of reaching a target.  Reversing at 472-493 would signal new lows.

It would set up a Bat in the yellow pattern targeting 402 and/or a Butterfly pattern in the yellow pattern targeting 472 or 409.  Reaching 486, of course, would also complete that nasty H&S pattern targeting 300ish.  So, the Bat and Butterfly patterns might be the least of investors’ worries.

Combining all the above, it’s easy to imagine a scenario where prices drop to 500 into the end of the year, but can’t quite seal the deal on the H&S pattern.  A nice bounce there and rally into February would fit nicely with my general equities forecast (see below.)

Breaking through current prices to 628.93 however, would set up a potential Bat Pattern to  682.35 — a price level that, if reached in March 3013, would flesh out several channels.

The rise from 522 has been rapid and without much wave form.  We’re overdue for a correction.  If it can remain north of the yellow neckline, we should see prices up into the 660-670 range by March.  But, it’s more likely that AAPL breaks down below that line, followed by a more serious plunge that reaches the low 400s.

GLTA.

continued for members…

UPDATE:  12:30 PM

We’re seeing a lot of strength in SPX this morning, nearly eclipsing yesterday’s 1409.15 high.  It broke down from a rising wedge yesterday, but has yet to follow through.  Our forecast still calls for higher, but I’ve been expecting it to come in a typical A-B-C corrective wave.

So, though we’ve come ridiculously close to our C wave target with the move up from 1343, I have tried to anticipate a strong B wave down, shorting at 1404 as a short-term trade (core position still long, expecting 1424.)  It’s what the analog calls for; and, the 60-min and daily RSI indicate it, too.

While it’s entirely possible that the move up from 1397.68 is just a very deep retrace of the first wave down, I have to consider the possibility that we’re just not going to get much of a B wave.  It’s not my lead scenario, but I can’t discard it.

One issue is timing.  In 2011, the analogous move took only 3 sessions (May 25-31).   The current top is running about 2.4X the time of the previous top.  Converting at 2.4X yields an equivalent 7.2 sessions.   Yesterday’s 1409.15 high marked 5 sessions already since the Nov 16 bottom.

That hardly leaves enough time for a big drop and subsequent rally.(I’m working on sketching out the comparative timeline and should be able to post in the a.m.)

If we break convincingly up through 1414 (the red .786), we’ll continue on up to our 1424 target area after breaking out of the current consolidation.  AAPL has unfinished business at its .618 of 592.04.  But, SPX doesn’t. After 1414, it’s clear sailing up to 1424.41.

Bottom line, if you’re playing this from a longer term perspective, it makes sense to remain long as we originally discussed back on the 16th [see: So Far, So Good.]

If you’ve been trying to play the interim swings and don’t want to get burned by the absence of any significant corrective waves, it’s a good time to review your stops. A move through 1410.50 would probably be a reasonable place to give up on shorts established down around 1404.

More later.