Widely regarded as one of the most sensitive interest rate barometers, the Dow Jones Utility Average continues to break down this summer. On Friday, the index hit a fresh 52-week low and now sits 15% below its best level since August 2007.

The utilities index enjoyed a big advance off the 2002 bear market low. Powered mostly by electric and gas companies the Dow Jones Utility Average (DJUA) ranks as one of the top performing sectors in the United States over the last five years. Electricity rates have surged over the last several years, boosting revenues for once staid utilities. But this bull market is looking increasingly frail and now just 5% from bear market territory.

The DJUA index currently trades at 15 times earnings and yields 3.9% annually. Both figures aren’t exactly attractive, especially compared to the bombed-out financials.

The decline of the DJUA index might have more to do with looming interest rates hikes than rising electricity bills for consumers.

Historically, this index has been highly sensitive to changes in monetary policy. In fact, long before the Fed starts hiking rates, the DJUA typically begins a long correction process in anticipation of higher interest rates. But the technical picture for this index now looks pretty bearish with a double-top formation occurring this summer (see enclosed chart).

One of the great index mysteries of 2008 is the relentless strength of the Dow Jones Transportation Average or DJTA. This barometer is up 8.3% this year and trades 9.9% below its all-time high this spring. But the index has failed to confirm Dow Theory because the larger Dow Jones Industrials Average has lagged, still off 20% from its high last October and down 14.6% in 2008.

In a bull market, both averages must rise together. But in a bear market, which is where we stand now, the Dow is in the gutter while the Transports remain rather resilient even amid $125 oil.

I think what’s happening for the Transports is an anomaly. The railroads are leading this index higher this year, mainly because of booming freight revenues as a consequence of surging fuel costs. Other segments of freight are getting smashed, including ground and air transport.

It’s only a matter of time until the Transports break down. That freight moving across the country is bound to slow as overseas economies finally break from their dizzy growth rates. As that occurs, look for the Transports to confirm the Dow in bear market territory.