The stock of consumer electronics giant Apple (NASDAQ: AAPL) has formed a bearish pattern in the last month or so, an indicator for options trading investors in Apple and the Nasdaq market. Apple accounts for about 20% of the NASDAQ 100 index (NASDAQ: NDX).

A double top has formed in the stock, as shown by the sloping orange line on the six-month chart below. The familiar “M” shape has a base at the $338 area, which is drawn in with a horizontal line. Today AAPL broke below that horizontal support, and a new leg to the double top now appears to be underway.

Based on the height of the “M” formation, downside potential for the pattern appears to be roughly to the $306 area, shown by the vertical orange line. That area is not far from AAPL’s 200-day moving average, which is just below $300 at last look.

Apple (NASDAQ: AAPL)

I wrote about Apple from a bullish perspective on February 7 when it broke above a bullish pattern. While the stock went on to hit new lifetime highs at that time, the gains came to an abrupt end less than two weeks later. It is that subtle degradation from a bullish chart to a bearish one that I wanted to highlight today.

Apple is one of the most-owned stocks by both institutional investors and hedge funds, which is clear by its gains over the last year. It is an out-performer that has had very strong upside momentum since the turn-up in August.

Given the weight of Apple in the NASDAQ 100 — more than 20% — more downside in the stock would be bearish for the index as well. The bearish “head and shoulders” seen in the index is very much a result of the bearish price action of Apple, along with a good number of the top-10 stocks by weight.

(Chart courtesy of tradeMONSTER)

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