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This Transports Group Is Waving a ‘Yellow Flag' for the Economy, Miller Tabak Strategist Says

Luke Sharrett | Bloomberg | Getty Images

Transports stocks are coming off their best first half since 1997.

The Dow transports rallied 19% in the first six months of the year, though the bulk of those gains were made in the first quarter followed by a stretch of consolidation in the last few months.

Matt Maley, chief market strategist at Miller Tabak, is now watching the group closely for its next move.

"We've definitely seen this divergence develop here in the last six or seven weeks with the transportation index underperforming; it's down about 6%, while the S&P and the rest of the stock market has moved up slightly," Maley told CNBC's "Trading Nation" on Thursday.

Maley notes that much of the recent weakness has been tied to the airline stocks, which have taken a hit on concerns over the delta variant and a resurgence in Covid cases in some corners of the globe. JetBlue, Southwest and Alaska Air, for example, are all down more than 11% over the past three months.

"I am watching the railroads very closely because that has nothing to do with leisure travel, and they have also been weak. Not a lot of people look at the S&P railroad index, but it's an important one, and it's already broken below its trend line going all the way back to March 2020," said Maley.

He is using the railroad stocks as a barometer for broader strength in the U.S. economy and the rest of the stock market.

"If it sees another downtrend, [if] it breaks below its June lows of 2,775, that lower low is going to signal that we have bigger problems than we thought and that the economy may not be as strong in the second half as a lot of people have been thinking, so right now it's a yellow flag. Look for that railroad index to see if it turns into a red one," said Maley.

The railroads subsector closed Thursday at 2,862. It's down more than 2% in the past three months.

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