S&P 500 hits new record but Transports lag

The S&P 500 rose 1.1 percent on Thursday to a new record high.

However, Mark Hulbert warned of an important Dow divergence that is ominous for stocks.

The Dow Jones Transportation Average is seriously lagging behind the broader stock market, and that’s potentially quite bearish....

The divergence began late last November, when the Dow Transports rose to a record high. They are now 6.7% below their all-time closing high (and 7.6% below the intra-day high). Over the same period, the Dow Industrials have risen more than 2%.

Citing research by Jack Schannep, the editor of a market-timing advisory service called TheDowTheory.com, Hulbert said that in the last 25 years, there have been 14 instances of big divergences between the Dow Transports and Dow Industrials. On average, the market eventually fell more than 10 percent in those 14 instances.

Even more ominous is that in five of the 14 cases, the divergences presaged a full-scale bear market.