Trendless market showing some weak spots

The trendless market is showing some weak spots. It's been a frustrating month for active traders. The S&P 500 has not seen two up days in a row since May 14 to 18. The Nasdaq has not seen two up days since May 20 to 21.

We noted yesterday that the Dow Transports average is now in correction territory, more than 10 percent off its recent historic (closing) high, which it hit in December.

The good news is very few of the indices are anywhere near correction. The S&P 500, for example, is only 2.6 percent off its historic high, which it hit May 21.

Nor are any of the other major indices near correction.

Major indices (percent from historic high)

However, several interest-rate sensitive sectors are showing signs of weakness:


1) Speaking of transports, Monday's decline in airline stocks is continuing into today. Airlines have had trouble in the last few weeks over concerns that added capacity was coming and that carriers would cut prices.

American Airlines' forecast that its second quarter unit revenue (passenger revenue per available seat mile, or PRASM) will decline 6 to 8 percent from last year. American blamed the revenue decline on foreign exchange issues and lower levels of business travel.

This comes several hours after United Continental predicted a 5 percent to 6 percent drop. Both said that capacity in May grew faster than traffic.

Southwest also said PRASM would drop four to five percent this quarter.

Last week Delta lowered its guidance for the second quarter due to softer revenues and higher fuel costs.

Southwest announced it was taking steps to lower capacity. That's good news, since Southwest also reported unit revenue dropped 6 percent.

The bottom line: Lower unit revenue means weaker margins. Delta, for example, lowered its margin guidance to 15.5 percent to 16.5 percent, below the prior guidance of 16 percent to 18 percent.

2) Finally, emerging markets are having a tough time as the data has improved in developed countries and interest rates have risen in anticipation of a rate hike from the Federal Reserve. Indonesia is down 3.9 percent, Philippines down 2.2 percent, Thailand down 1.1 percent, Vietnam down 0.9 percent.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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