Market Insider

Dow divergence spooks traders

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A historic divergence between the record-setting Dow industrials and the slide in the Dow transports has caught the eye of traders as a potential warning sign for stocks.

The split in performance between the two became especially noticeable after Wednesday's dramatic airline-led selloff in the Dow transports. But some strategists say the divergence does not necessarily mean a Dow Theory selloff will be triggered nor that a market collapse is at hand.

Bespoke, after studying past performance, said in a note that when Dow transports have underperformed the Dow industrials, there's been a "less than average" return for the Dow 30 over the next six months. But the underperformance was not an "indicator of an impending bear market or equity crash."