Some market observers are pointing to the recent lagging performance of transportation indexes and exchange traded funds as a warning sign the rally may be getting long in the tooth.
“This is potentially worrisome from at least two different points of view. First, the Dow Theory, the oldest market timing system still in widespread use today, keys off the behavior of the Transports and the Dow Jones Industrial Average,” writes Mark Hulbert at MarketWatch. “Joint new highs are considered evidence of a healthy bull market, while divergences are considered a warning sign of trouble.”
The iShares Dow Jones Transportation Average (NYSEArca: IYT) is flat over the past week, while the S&P 500 has gained nearly 3%. [Dow Theory and ETFs]
“Regardless of the Dow Theory, furthermore, the Dow Transports is thought by many to be a leading economic indicator — on the theory that companies in the transportation sector are a particularly sensitive barometer to how the economic winds are blowing,” Hulbert adds. “So weakness, even if it’s just relative weakness, could be hinting at bigger problems down the road.”