The Dow Industrials are breaking to new highs but the Transports are backsliding

Key points:

• The Dow Jones Industrial Average closed at a 3-year high with a range rank of 100.0, but the Transportation Average sits just below the 85th percentile of its 3-year range despite having reached its own 3-year high within the prior six months
• Among completed one-year outcomes, the Industrials rose only 56% of the time following similar setups, a weaker result than the simple non-confirmation divergences
• Other equity benchmarks showed mixed but not uniformly bearish results when the trigger was redefined around the benchmark itself, though downside outliers were concentrated around major cyclical peaks

A different kind of divergence

According to Dow Theory, a rising trend in both the Dow Jones Industrial Average and the Dow Jones Transportation Average signals a healthy economy. When one index makes a new high and the other fails to confirm, it raises questions about the sustainability of the advance.

Over the past several weeks, I've noticed a pattern that doesn't fit neatly into the classic non-confirmation framework. The Dow Industrials reached a range rank of 100.00, at the very peak of its 3-year range. But the Transports, which had reached their own 3-year high earlier in the move, have peeled off. They now sit at the 84.6 perce