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.”

In options trading, some institutional investors are making betting against the transportation ETF, which could be evidence of hedging or speculation of a decline. The fund has also seen trading volume pick up this week. [ETF Chart of the Day: Dow Jones Transportation Average]

Dow Theory is suggesting a “potential inflection point,” writes Barry Ritholtz at The Big Picture blog. A rally above 12,900 in the Dow Industrials would carry the index above the 2011 highs, but bullish investors want to see the move confirmed by the Transportation index, he noted.

iShares Dow Jones Transportation Average

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.