Why Stocks May Continue October’s Rise—Searching for Alpha for November 2011

So what’s next? With the market in “teeter-totter” mode, pattern recognition traders may be guessing that the next move is down. However, there are a number of reasons to think that last month’s favorable tone will last until the end of the year. To wit: 

• Hedge funds are in a hole, down around 8% YTD. They desperately need to make money this year, in many cases in order to survive. They have a big incentive to push the buy button and continue the current uptrend.   
• Earnings reports have been favorable. Among the 300 or so companies that have reported, roughly seven out of ten have beaten expectations.
• This week’s G-20 summit should generate enough sound bites to keep optimism alive about Europe (at least until year-end).
• Expectations regarding the Debt Super Committee are extremely low. As a result, it is unlikely they will disappoint. Even a few good ideas from this group of six Democrats and six Republicans could have bullish ramifications.

Note that the above bullet points are short-term in nature, and not particularly impactful if taken individually.  But they should provide the fuel for the year-end rally to continue.