Is the bull market back on track?

It certainly seems that way. Since Oct. 25, the day oil prices peaked at more than $55 a barrel, the

Dow

,

Nasdaq

and

S&P 500

have each climbed about 8%.

More importantly for followers of technical analysis, the major averages have finally broken out of a bearish trend characterized by lower highs and lower lows. On Thursday, the S&P 500 established its highest close since August 2001.

The sudden spurt higher has been fueled in no small part by a 15% decline in crude oil and the re-election of President Bush. Analysts assume that more money would flow into the stock market if tax cuts on dividends and capital gains are made permanent, and if social security is partially privatized, as Bush has proposed.

A stronger-than-expected employment report and diminishing concerns about terrorism have also contributed to the ebullient mood. On Wednesday, the government lowered its terror threat level for the financial services sector in New York City, northern New Jersey and Washington. Meanwhile, the death of Palestinian leader Yasser Arafat Thursday has ignited hopes for peace in the Middle East.

The improved news flow and breakout of stocks from a downward trading range has forced some bearish analysts on Wall Street to have a change of heart.

Tobias Levkovich, chief investment strategist at Smith Barney, raised his year-end target on the S&P 500 Thursday to 1075 from 1025, saying investors have been emboldened by low valuations and a strengthening of corporate balance sheets.

The S&P 500, which closed Thursday at 1173, trades at less than 17 times next year's earnings, close to the 43-year average of 15. In addition, debt-to-capitalization levels have "collapsed to 15-year lows," Levkovich observed in a research note. "Essentially, hedge funds, pension funds, and equity mutual funds all want to generate better returns and have found some reasons to make this

rally a reality."

Paul Nolte, director of research at Hinsdale Associates, thinks stocks could actually rally another 10% from current levels, as technical indicators remain supportive of the market.

"Volume is much stronger on advancing days than on declining days," he said. "We think we're seeing a resumption" of last year's bull market. (On Thursday, about 1.4 billion shares traded on the

Big Board

and 1.8 billion in Nasdaq activity; up volume was over 70% of the total in both markets.)

Unfortunately, Nolte doesn't expect the good times to last very long. At some point in the first quarter, he said, the rally should stall, as the economy slows down following a series of interest rate hikes by the

Federal Reserve

. He also noted that oil prices and movements in the dollar are "wild cards."

If this winter proves to be unusually cold, analysts say oil prices could test their October highs, which would dampen consumer spending over the all-important holiday shopping period and pressure equities.

A continued slide in the dollar could also keep investors on the sidelines. But some say a sharp deterioration isn't likely given that Europe and Japan appear to be struggling economically and that neither has a definitive plan to raise interest rates like the U.S. Federal Reserve. Notably, Germany's gross domestic product rose just 0.1% in the third quarter from 0.4% in the second. In addition, Japanese data on machinery orders fell 1.9% in September, well short of the 1% increase that had been expected. The Nikkei has fallen 4.4% since Oct. 8.

Francois Trahan, chief investment strategist at Bear Stearns, isn't as concerned about the dollar as he is about the overall economy.

"The most poignant argument against the resumption of the bull market of 2003 is that the conditions that halted the market earlier this year, namely a loss of momentum in leading indicators, are still in place," he said.

The Conference Board's index of leading economic indicators fell 0.1% in September, the fourth-consecutive decline. Trahan also noted that Fed rate hikes take about six months to filter through the economy, so investors have yet to feel the full impact of the tightening campaign.

"We believe the latest move in the S&P 500 is more likely a fakeout than a breakout," he said in a research note.

High levels of bullishness and a deceleration in earnings growth are also considered near-term risks to the market, analysts say. A poll by

Investors Intelligence

found that 58.1% of financial advisers are bullish while just 22.6% are bearish. Meanwhile, both

Cisco

(CSCO) - Get Report

and

Coca-Cola

(KO) - Get Report

lowered profit forecasts this week, while

Dell

(DELL) - Get Report

posted merely in-line results and guidance.

"Our instinct is not to chase stock price moves when earnings concerns prevail," said Levkovich. "But at the same time, we are wary of telling investors that a major selloff ... is probable either."