U.S. equities have stumbled a bit in October but one encouraging sign for the bulls is that the transportation sector has been leading the broader market.
The underperformance of the iShares Dow Jones Transportation Average (NYSEArca: IYT) in the third quarter caught the attention of many technical analysts as a potential warning sign.
However, for the month ended Oct. 23, the transportation ETF is up 3.5% compared with a 3.4% loss for SPDR Dow Jones Industrial Average (NYSEArca: DIA).
According to Dow Theory, industrial and transportation averages should confirm new highs together in a healthy bull market. [Transportation ETF Still Lagging]
The transportation fund has been consolidating in 2012 but bulls are looking for a decisive breakout from the trading range.
“Much noise has been recently made about a divergence in price between the Transports and Industrials. Dow Theorists like Richard Russell suggest that there is a Dow Theory sell signal in place,” Jonathan Verenger wrote at SeekingAlpha earlier this month.