Dow Theory giving warning signal. What to sell

Published Thu, Mar 5 20157:00 AM EST

The recent underperformance of the Dow Jones transportation average could signal the start of a more meaningful decline, some investors believe. Source: Sterne Agee After two years of strong gains, up 72 percent, the Dow transports measure is losing momentum, failing to keep up with the rest of the market. So far this year, transports are down 1 percent, compared to an increase of 2 percent for the S & P 500 and Dow, and a return of 5 percent for the Nasdaq composite index. Despite the Dow hitting a new record this week, transports remain 3 percent below their all-time high of 9,310 set on Nov. 28. Read More The buyback bull market: Purchases hit record That divergence, to some market experts, is not related to a pause in the rally but rather the potential beginning of a more significant decline. "The current three-month stall relative to the S & P 500 is the longest week-over-week period of poor relative strength to the market since the five-month stretch of March-August 2013," wrote Carter Worth, chief market technician at Sterne Agee. He thinks transports are "at risk of breaking a relative strength uptrend in effect since late 2012," and any incremental weakness in the days/weeks ahead is "inescapable." The recent development is also source of concern for those who track the century-old "Dow Theory." According to the principle, when both the Dow industrials and transports move in tandem and trade around new highs, it signals strength and confirms a bullish pattern. The opposite is usually seen as a reason to sell. The money play: Worth, who warned last November that "the likelihood of [transports] outperforming again in 2015 is very low," has put together a list of stocks he believes are a "sell" at these levels. The table above contains some of the names on his report. Trucking company Con-way (CNW), is one of the companies mentioned. The stock is the worst performer in the Dow transports, falling 10 percent year to date. Other bellwethers such as UPS and Delta also make the cut on his list. Both are down more than 8 percent this year.

Delta Air Lines planes at John F. Kennedy Airport in New York.

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The recent underperformance of the Dow Jones transportation average could signal the start of a more meaningful decline, some investors believe.