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Apple stock at brink of correction after consecutive 2% declines

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Apple fell for a fifth day, posting its first consecutive 2 per cent declines since 2013 and pushing shares to the brink of a 10 per cent correction. The slide comes amid a rout in China's market that is occurring two weeks before the company reports earnings.

[SAN FRANCISCO] Apple fell for a fifth day, posting its first consecutive 2 per cent declines since 2013 and pushing shares to the brink of a 10 per cent correction. The slide comes amid a rout in China's market that is occurring two weeks before the company reports earnings.

The iPhone maker's stock decreased two per cent to US$120.07, bringing its five-day loss to 5.2 per cent - a drop that wiped out US$38 billion of market value. Since reaching its all-time high of US$133 on Feb 23, the stock is down 9.7 per cent, leaving it about 40 US cents away from a correction.

Losses in Chinese equities, where almost US$4 trillion has been erased in a monthlong deluge, may leave consumers with less money to buy gadgets. The Cupertino, California-based company releases third-quarter results on July 21, its first report to include sales of the Apple Watch.

China's rout "and reaction from policymakers could create a bigger problem for the economy, causing consumers to retrench, which would impact Apple's sales," said Walter Todd, who oversees US$1 billion as a chief investment officer for Greenwood Capital. "It's a risk that's certainly starting to be reflected in the company's shares." Josh Rosenstock, a spokesman for Apple, declined to comment.

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Analysts predict Apple earned US$1.79 a share in the three months ended June 30, compared with US$1.28 a year earlier, according to data compiled by Bloomberg. The company has beaten estimates every quarter since 2012.

Deutsche Bank analysts, who rate the stock a hold, said in a July 5 note that sales of the Apple Watch are a "wildcard" in the third quarter, and that the firm had trimmed longer-term estimates for the device. In the quarter, the company probably sold 3.9 million watches, they said.

Apple's stock slide has both coincided with and contributed to a period of turbulence in US shares. The Standard & Poor's 500 Index lost 1.7 per cent Wednesday, its fourth-biggest decrease of the year, and gave up four-fifths of a rally Thursday after rising 1.4 per cent in the first half hour of trading.

Apple got 17.4 per cent of its revenue from China in its last full-year reporting period. That was the 16th-highest portion among S&P 500 that break out revenue for the region, Bloomberg data show. China sales were up from 15.8 per cent the prior year and 11.7 per cent in 2011.

According to Tim Cook, its chief executive officer, Apple is planning on China becoming its largest market eventually. New larger-screen iPhones helped sales in China overtake the US for the first time during the first three months of this year.

The country's market rout comes as the company is rushing to roughly double the number of stores it has there by the middle of next year.

"China is an important market for Apple," said Jeffrey Fidacaro, an analyst at Monness Crespi Hardt & Co, who has a buy rating on the stock. "Given the pullback in equities, if that has a ripple effect in consumer spending, you could see the stock react to it as well." In addition to the correction risk, Apple shares are in danger of breaching another chart level that technical analysts monitor, its 200-day moving average. That price is US$118.72, a little over 1 per cent below its Thursday close.

Apple has spent 455 days above the 200-day threshold.

Speculators in Apple options have rushed into near-term bearish bets amid the selloff. The Chicago Board Options Exchange Apple VIX Index, a gauge of demand for options on the iPhone maker's stock, has jumped 31 per cent since Tuesday, its biggest two-day increase since March 2012.

One-month bearish puts on Apple cost 7.8 points more than similar-maturity bullish calls, the most expensive level in a year for the relationship known as skew, according to data compiled by Bloomberg.

BLOOMBERG