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NEW YORK, May 1 (Reuters) - As the U.S. stock market returns to approach all-time highs, some investors are keeping their eyes on a group that has been lagging - transportation stocks - for signs of where the market could turn next.
The Dow Jones Transport Average index has shed 5 percent since it and other major indexes scaled record peaks on March 1. The 20-component index, which includes airlines, railroads and package delivery companies, is often considered a barometer of economic activity.
By contrast, the Dow Jones Industrial Average is within 1 percent of a fresh record high after enjoying its best week of the year so far last week. The Nasdaq and Russell 2000 recently broke to new highs.
"It is kind of the fly in the ointment right now," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana and a contributing editor to the Dow Theory Forecasts newsletter.
Dow Theory tracks the industrials and transports to confirm major trends in the stock market.
"This is all well and good what is going on with the industrials, but history has shown you don’t get the sustained upward moves without confirmation from the Dow Jones transportation average," Carlson said. "And on a very, very short-term basis here during this rally, we haven’t gotten it."
The Dow transports and industrials indexes both slipped in Monday afternoon trading.
The transport index's performance has been undercut by negative reactions to recent earnings reports, including from American Airlines Group and Ryder System.
Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, said that before he expressed broader concern, he would keep an eye on how transports trade following earnings season.
“If they continue to lag I would be a little bit more concerned about it, especially if we see weakness in the economic numbers that get released this week," Nolte said.
Data due this week includes Friday's employment report.
According to specialists who track the market's technical aspects, transports are not signaling anything particularly worrisome yet.
The index remains above its 200-day moving average, which itself has been moving upward.
"We think the 200-day moving average is a terrific proxy for what the trend is doing and for the transports, our take is that the trend is still higher," said Ari Wald, head of technical analysis at Oppenheimer in New York.
"Yes, they have underperformed," Wald said. "But no, they haven’t broken any support levels that in our view would cause problems for the overall market."
Editing by Bernadette Baum