DOW Theory states that the DOW Jones Industrials is closely linked with the Transportation Sector. In other words, a major market trend cannot happen without one confirming the other. If you see a divergence take place between the DOW Jones and the Transports, then something has to give, in other words, these two sectors can only diverge for so long.
As an example, if the DOW is rallying, but the Transports are falling behind or breaking down, then the Transports need to rally soon, otherwise the DOW will soon breakdown and the rally will end. Likewise, if the DOW Jones is falling, but the Transports begin to rally, this may be an indication that the DOW Jones will soon recover and rally as well.
When using this indicator, look for divergences between the DOW Jones and the Transports as an early indication that a major trend change is about to take place
Transports / DOW Ratio
The direction is what is important: When the direction is up, the Transports are outperforming the DOW, which is healthy
Here's a real word example of how to use the DOW Transports as an indicator with respect to the DOW:
In the chart below, the Transports began to breakdown in late January 2003 and underperform the DOW. This was a big red flag that the DOW would soon follow.
Following the sharp breakdown in the Transports, the bounce ocurred followed by another downtrend which began in mid February. This second breakdown finally caused a subseqent breakdown in the DOW.
Following the weakness in the Transports, the DOW finally broke down in early March.
http://breakpointtrades.com/indicator_DOW.htm
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