DRIP Investor

Weekly Commentary Archives

Charles Carlson, CFA
Editor, DRIP Investor Newsletter

Pullbacks Happen
1/30/12

Based on the Dow Theory, the stock market’s primary trend is bullish. Thus, I would expect stocks to have an upward bias over the next several months.

Having said that, it is important to remember that all bull markets have periodic pullbacks. While such pullbacks are unsettling, they serve an important purpose — to reduce the speculative fever that builds up during bull-market runs and to restore values.

The stock market has had a strong run through the first month of the year. Reflecting that strength, our Intermediate Potential Risk Indicator shows that some 65% of the stocks on the New York Stock Exchange trade above their 200-day moving average. This is a sharp jump in the last three months and an indication that stocks have been performing better. While the 65% level is still not at what I would consider “high risk,” it is evidence that stocks could be nearing one of those periodic pullbacks.

Thus, investors should not be surprised if stocks take a breather in the near term. The good news is that if a pullback does occur, investors can buy during such pullbacks knowing the market’s primary trend is bullish and that there is a high degree of probability that stocks will resume their upward move.

One attractive stock to consider on pullbacks is Exxon Mobil (XOM). I like quality energy stocks this year and expect Exxon to outperform the market. Please note that Exxon offers a direct-purchase plan whereby any investor may buy the first share and every share of stock directly from the company. For contact information for Exxon and other U.S. direct-purchase plans, please click here.