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While I believe that the market will end the year in positive territory, I fear that we may run into a market pullback at some point during the year.  Of course my crystal ball isn't clear enough to know if/when this will happen, but there are a few factors that support my belief.

The DOW Theory- Most of us are familiar with the DOW Jones Industrial Average as it is widely quoted throughout the news.  The DOW Jones Industrial Average consists of  thirty stocks that together are believed to be representative of the market as a whole.

The DOW Jones Transportation Average is another DOW index.  This index consists of twenty transportation stocks (mostly trucking, rail, and airline stocks) that together are believed to represent the performance of the transportation industry.

One of the tenants of the DOW Theory states that the DOW Jones Industrial Average and Dow Jones Transportation Average should follow each other.  If the two diverge, there is the potential for the market to shift direction.  Over the past month, the performance of the DOW Jones Transportation Average started to flatten, then it turned negative.  If this tenant of the DOW Theory holds true, then it could mean that the DOW Jones Industrial Average could go down as well.

Following the Herd- Unfortunately we tend to act in the opposite manner that we should when it comes to investing.  When the market is down and struggling, we get nervous and want to get out of the market and away from the volatility.  When the market is doing well, we get excited and want to add more money.  What we tend to do is sell "low" and buy "high"; the exact opposite of how we should invest.

The Chicago Board of Exchange Volatility Index (also know as the VIX) shows the mood of investors.  A value of 20 is considered the norm.  Anything above that value and investors are considered nervous.  Anything below, and investors are considered calm.

Recently the VIX hit 16.10.  That's a level of comfort that hasn't been seen since last July-right before the market started it's decline through October.  This may mean that investors are getting too comfortable with the market and currently buying "high."

According to CNBC.com staff writer, Jeff Cox, the "smart money" is beginning to move to cash, while the average retail investor is adding to other equity investments at a rate not seen since last April.  In his article Is the Smart Money Headed for the Sidelines? (CNBC.com), Mr. Cox points out that institutional investors (pension managers, etc) and corporate insiders are beginning to reduce their stock exposure and lock in their profits.  He states that corporate insiders are selling stock at a rate that is double that of January and the highest since last May.

None of these signs by itself means much, but seeing retail investors feeling comfortable and moving more money into other equity investments while the "smart money" begins to head for the exit worries me.  It could very well turn out that this year's markets may look similar to last year's turbulence. 

I have been suggesting to many of my clients that they begin taking a portion of their money out of stock investments and move to cash or bonds.  If you're wondering what makes sense for your portfolio, I suggest that you contact your financial advisor.  I'm also happy to meet with you for a portfolio review to discuss your specific needs.