Stocks extended losses Monday as a massive selloff in China's Shanghai Composite rattled equities around the world, and if one classic technical indicator is correct, there could be more pain to come.
The Dow Jones transportation average has widely underperformed the broader market year-to-date, falling more than 12 percent while the Dow is down 2 percent and the S&P 500 is up less than 1 percent in the same period. This divergence, known as the Dow Theory, is an age-old technical indicator that suggests the broader market will follow suit.
"If you look at a long-term chart since the Ronald Reagan bull market began [in 1980] you have basically such epic outperformance [in the transports] even now with [them] down as much as they are," Carter Worth said Friday on CNBC's "Options Action." "This spread presumptively is not sustainable."