November’s Looking Good

Hats off to November, so far! October saw a decline in market momentum, but the markets’ ability to hold has been encouraging. Now, with only six weeks to go before we bid 2005 goodbye, stocks appear to have regained some renewed momentum on a more upbeat view towards stocks.

 But, is it a bear market rally? The reality is that trading volume has not supported the rally. When you see declining or flat volume on an uptrending market, you need to question its sustainability.

 In November, market sentiment has reversed, and it is now far better than it was in October, as we’ve seen in the underlying market strength and increased buying.

 If you like to follow historical trends, you may want to consider this: According to the Stock Trader’s Almanac, November represents the start of the “best six months” of the year for the stock market. So far, this strategy is playing out, as money is coming in and driving stocks above key technical resistance levels.

 For investors like you, November may see more gains ahead, but I still am somewhat wary of the weeks ahead, given the looming higher interest rates and their impact on consumer spending and corporate earnings. Also, be careful not to ignore the oil scene just because oil prices are declining. There may still be a bull in the charts. Any sign of instability or a market shock could be enough to drive a renewed increase in oil prices.

 If the buying continues, we could see another up year for stocks in 2005, representing the third straight year of gains since the bear market from 2000 to 2002.

 On the other hand, based on what we are currently seeing, 2005 may also record the worst returns in three years and our second straight year of declining gains since the impressive showing in 2003 when the NASDAQ and Russell 2000 returned 50.01% and 45.37%, respectively. 2004 saw gains fall to 8.59% and 17% for the NASDAQ and Russell 2000. And, to date in 2005, the gains are a miniscule 2.22% and 3.17% for the NASDAQ and Russell 2000, respectively. The decline reflects reduced market optimism.

 Let’s watch how 2005 ends, as it could set up the market for 2006.