Transportation stocks are running into trouble.
The economically sensitive group of stocks just posted eight straight days of losses, its longest losing streak since 2011, and one technical expert says one of its subsectors could make or break the recent market rally.
Tepid trading on Tuesday didn't stop MillerTabak managing director Matt Maley from emphasizing the importance of the railroad stocks, which are approaching a key level that could determine where the broader markets go.
"If they roll back over, like they did just before the correction of early last year in 2018 and the one that started in late 2015, it could be a good leading indicator of some problems," he warned on CNBC's "Trading Nation." "So, right now, ... it's at a very important, critical technical stage."
Using a version of the Dow theory — the idea that if either the industrial average or the transportation average moves above a previous high, the other one is likely to follow — Maley added that the entire market could benefit if the railroad plays are able to break above their all-time highs.
"Right now, ... we are seeing weakness in the airline stocks — they're down 18 percent from their 2018 highs — and the truckers are down 13 percent. However, the railroad stocks? The S&P Railroad Index is testing its all-time highs," he said Tuesday. "If this group can break out in a meaningful way, it should help the transportation index turn back around and move higher, which would be good for the broad market."
In a note to clients, Maley said the near-term action in the railroad stocks will be "very, very important" for stocks. He also said to keep an eye on key economic data like Friday's jobs report from the Labor Department.
Erin Gibbs, research analyst at S&P Global Market Intelligence, told CNBC the transportation sector as a whole has proven to be a steady investment in recent months.
"This group, even when you look across all the industries, their estimated growth for this year and next has stayed remarkably stable," she said on "Trading Nation." "It basically hasn't moved at all since the beginning of the year, when the broader market has almost been cut in half. So this group looks very stable. We're looking at stable revenue growth, and this is really more about valuations coming down and giving you a few opportunities, railroads being the most pricey, but airlines being the cheapest."
The S&P Railroad Index lost steam this week, but is still up 20 percent year to date.
