) -- Even before the arrival of Friday's

weak GDP data

, the stock market was sending a pretty big signal of rising fear about the health of the economic recovery.

Since hitting a 52-week high of 5,655 on July 7, the

Dow Jones Transportation Average

had pulled back nearly 8% through Thursday's close at 5,197. The index is made up of companies like airlines, railroad operators and shipping, trucking and package delivery companies, and their dramatic swoon may be a poor omen for the broad market.

"Incredibly to us, the DJ Transports hit all-time highs early this month, but are down 7.5% from their July 7 highs as of Thursday's close," writes Mark Arbeter, chief technical strategist at Standard & Poor's, in a research note. "The transportation stocks are highly sensitive to the economy, so we think continued weakness in this area could be a big blow to the overall stock market."

The DJT components with the biggest weightings are

Union Pacific

(UNP) - Get Report

at 10.6%;


(FDX) - Get Report

at 10.2%;

United Parcel Service

(FDX) - Get Report

at 8%;

C.H. Robinson Worldwide

(CHRW) - Get Report

at 8%; and

CSX Corp.

(CSX) - Get Report

at 7.8%.

Union Pacific, FedEx, CSX, and C.H. Robinson all hit their 52-week highs on July 7, and have pulled back markedly since then. UPS gave a cautious outlook on Monday when it reported its quarterly results, and its stock has fallen 6.8% so far this week.

Looking at charts for the S&P 500, Arbeter says the index is raising the stakes each time it revisits its 200-day simple moving average of 1,284, which happened for a third time early in Friday's session.

"While it's a positive that this moving average is providing a floor for the index, it is very nerve-wracking from our perspective," he states. "Eventually this line will get taken out as the more times an index tests a piece of technical support, the more important it becomes, in our view."

Until the debt-ceiling impasse gets resolved, however, Arbeter expects the market to be more responsive to news events than technical levels.

"The major indices remain "gridlocked" in a fairly wide trading range with strong support underneath and strong resistance overhead," he writes. "Just a few days ago, it looked like the market was going to break higher, in our view, but with so many eyes focused on Washington D.C. and Europe, the market has become headline-driven so the charts are not giving us much of an edge."

The key S&P 500 levels for investors to keep in mind in the coming weeks are 1,250 on the downside and 1,353 on the upside, according to Arbeter. The index was recently at 1,296, down 5 points.

"A head-and-shoulders formation on the "500" is still a possibility and a close below 1,250 would complete the pattern," he states. "This, in our view, would open the door for a major correction, if not bear market. To erase the potential for this bearish pattern, we think the "500" would have to at least close above the early July highs of 1,353, if not go to new recovery highs."


Written by Michael Baron in New York.

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Michael Baron


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