Transportation stocks are trailing the Dow Jones Industrial Average by the most in more than two years, raising concern among investors who follow a market-analysis technique that’s more than a century old.

The Dow Jones Transportation Average has fallen 4.8 percent this year as the industrial average climbed 1.2 percent, the biggest divergence over comparable spans of time since October 2012. The transportation gauge has lost almost 5 percent in less than a month and on Tuesday dipped below its average from the past 200 days for the eighth time since March 26.

The moves could be alarming to investors who subscribe to what’s known as Dow Theory, which holds that transportation and industrial stocks must advance together for market gains to last, said Richard Moroney, chief investment officer at Horizon Investment Services and a follower of Dow Theory, named after Wall Street Journal founder Charles Dow who came up with the concept in the 1880s. A drop in the Dow industrials to 17,164.95, the lowest closing level this year, would confirm a bearish trend, he said.

“Transports have gone below a key low and if the industrials were to confirm that by moving below that Jan. 30 close, that would be your classic bear-market Dow Theory signal,” said Moroney, who also edits the Dow Theory Forecasts and Upside newsletter. “It’s a yellow flag when there’s a divergence like this.”

David Fuller's view

With no offence to Dow Theory Forecasts, I am glad that I am not running a service that is primarily dependent on one indicator.  I recall at least one Dow Theory sell signal during this 6-year bull market to date.  I am never dismissive of them because the next big selloff will contain a Dow Theory sell signal.  However, we do not have one right now, because the DJIA is testing its upper boundary.

I had noticed and been mildly concerned about the recent softness of not only Transports but also the Utilities Average, and have mentioned this in several Audios.  I attribute the weakening of Transports, which includes railroads and airlines, to the softening of 2015’s 1Q GDP.  If so, it may pickup over the next couple of quarters, particularly if the US Dollar Index weakens, as I have been suggesting.  If not, a too strong dollar will certainly be a headwind for holiday industries in the USA.  I am not sure why Utilities have weakened, although being a conservative bolthole sector; it may reflect increasing optimism among US investors.