Turnaround in a key index could be great news for the overall market

After lagging the broader market for the bulk of this year, the Dow Jones transportation average has begun playing catch-up in recent weeks. And that could bode well for the broader market.

If the transportation stocks see further upside, the market could rise along with it, in what is historically considered a classic "Dow Theory buy signal," said Matt Maley, equity strategist at Miller Tabak. The index made a fresh all-time high Friday.

The Dow transports average "has airlines in it, it has trucking in it, it has railroads in it, and of course stocks like Federal Express and UPS. If the consumer is doing well, that means people are going to be buying more things and that means truckers have to ship more things. So, therefore, it's a good indicator for what's going on in the economy as a whole, especially for the consumer," Maley said Friday on CNBC's "Trading Nation."

The airline stocks, specifically, look attractive here, Maley said. Carriers like Delta, JetBlue and American are components of the 20-member index. Delta was trading at all-time highs Friday and the company is set to report its quarterly earnings next week.

On the ground, investors ought to closely watch the price action in FedEx and UPS, Maley said. He pointed out the importance that online retailing (and thus, shipping) plays for the consumer.

"If for some reason these stocks start to roll over in any significant way, that's going to be a warning signal that the consumer is starting to pull on their horns. As good as the transportation stocks look right now, the new all-time highs they're making are only slight ones. So, we'd like to see a little more upside follow-through before we jump in with both feet," he said.

Should he see positive movement for the index in the month of July, Maley said, "it will be very positive for the rest of the year."

A classic theory of technical analysis is that strength in the Dow transportation average must be seen in order to "confirm" the rally in the more widely known Dow Jones industrial average.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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