With the U.S. market feeling more split than it has in a while, this is not the time for hot takes. It’s the time for evidence.
Some groups are grinding to new highs. Others are stalling out. The headlines want you focused on whatever mega-cap stock is down 3% this week.
Meanwhile, entire sectors have been quietly breaking out for months.
So the real question is not whether the market feels mixed.
The question is whether this is normal, healthy rotation inside an ongoing bull market, or if we’re in the early stages of something more sinister.
We’ve been leaning into the leaders and avoiding the areas that continue to lag. That’s not prediction. That’s process.
But if this is a true bull market, then rotation should continue to work. Former laggards can play catch up. Leadership can change hands. Participation can expand.
For that to happen, the underlying health of the market has to remain intact. And, when it comes to measuring underlying health, I was taught a simple lesson early on.
If it isn’t broken, don’t fix it.
For nearly 130 years, one of the most reliable gauges of the primary trend has been the relationship between the industrials and the transports.
Dow Theory is not some cute relic from the 1800s. It’s a framework built on the idea that goods need to be produced and shipped. If business is expanding, both should confirm.
The Dow Jones Industrial Average and the Dow Jones Transportation Average have been doing exactly that.
The transports, which began life in 1884 as the Railroad Average before evolving alongside trucks and airlines, have just resolved a five-year base to new all-time highs.
Not marginal new highs. Clean breakouts from well defined resistance.
It’s hard to build a bearish case when one of the most economically sensitive indexes in America is doing that.
So today, we’re going to do three things.
First, we’ll look at what this multiyear breakout in the transports actually means in the context of Dow Theory confirmation.
Second, we’ll revisit the rotation narrative from late last year, when everyone was convinced only seven stocks were working, and compare that to what’s actually happened since.
And third, we’ll define the line in the sand.
Because if I’m wrong, and this is not healthy rotation, but instead a late-cycle squeeze before a rollover, the transports will tell us. They always do.
The level is clear. The roadmap is simple.
Now it’s just about paying attention.
Rotation Is Not a Conspiracy Theory
When we talk about “evidence,” this is what we mean.
The Dow Jones Transportation Average has just completed a multiyear base and broken out to fresh all-time highs to start 2026.
Not almost. Not close. Actual new highs:
That is not what exhaustion looks like. That is what expansion looks like.
This is the Dow Theory confirmation we were pounding the table about back in November.
At the time, the popular narrative was that only seven stocks were carrying the entire market.
So we did something radical.
We counted.
While everyone was obsessing over a handful of mega caps, participation was broadening.
Since that November noise, that basket of “Lag 7” stocks is down roughly 6%. The technology sector index has also declined over that stretch.
Meanwhile, the transports have rallied more than 20%.
That isn’t random. That’s rotation.
Capital didn’t leave the market. It moved. It rotated away from crowded leadership and into economically sensitive areas that had been basing for years. That’s a classic bull market characteristic.
It’s also a reminder.
You can either let headlines tell you what’s happening, or you can go look at the charts yourself. One of those approaches requires work. The other requires blind faith.
We chose the work.
Now, as strong as this move has been, this is exactly where discipline matters most. Because if this breakout is real, it should continue to hold.
And if it fails, that failure will tell us something important.
That’s where risk management comes in.
Your Q1 Risk Management Tool
Now let’s talk about the part that actually matters.
Yes, the rotation into transports has created real opportunity. Yes, this is exactly how healthy bull markets behave.
Leadership rotates. Money moves. New groups step up.
But what if I’m wrong?
What if this is not healthy rotation at all?
What if this breakout in the Dow Jones Transportation Average is the final squeeze before the air comes out of the balloon?
Good.
Because if that’s the case, we’ll know.
Breakouts that matter don’t immediately fail.
Structural bull markets don’t see economically sensitive indexes rip to new highs and then quietly slip back into their old ranges.
If the next bear market is here, the transports won’t be making new highs.
They’ll be back below all that former resistance from 2021 through 2025. Back under the breakout. Back into the range.
That’s the level.
Not a vibe. Not a headline. Not someone’s opinion on television.
A level.
If price is above it, the benefit of the doubt goes to the bulls. If price is back below it, we adjust. We get defensive. We manage risk.
It really is that simple.
The roadmap is on the chart. The line in the sand is obvious. I even used a bar chart so there’s no confusion later when people start rewriting history.
No excuses.
Either the breakout holds, or it doesn’t.
Until proven otherwise, the trucks are still driving higher and the airlines are soaring.
Ignore it if you want. I won’t.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs