The Coming Week: Economy Takes Spotlight

An expected improvement in next week's economic reports may boost investor sentiment.
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The stock market may plump up during the shortened Thanksgiving holiday week, traders say, mostly because many investors may be unwilling to bet against its recent rally.

An improvement expected in many of next week's economic reports -- which include a third-quarter gross domestic product revision, the consumer confidence index, new home sales data, durable goods orders and the Chicago Purchasing Managers Survey -- also is expected to help investor sentiment.

For the seventh week in a row, the

Dow Jones Industrial Average

ended higher than last week, gaining 225.75 points, or 2.6%, to 8804.84, while the

Nasdaq Composite

and the

S&P 500

-- which have risen in six out of the last seven weeks -- finished ahead as well. The Nasdaq rose 57.6 points, or 4.1%, to 1468.70, while the S&P 500 tacked on 20.72 points, or 2.28%, to 930.55.

"You cannot fight the tape," said Michael Driscoll, a trader at Bear Stearns who said the market should be going down -- it is nearing some important resistance levels -- but will probably go up instead.

Over the past few weeks, investors who bet against the market have looked like, well, turkeys. "Now, the shorts are in hiding," said David Briggs, head of stock trading at Federated Investors. Briggs remains fairly concerned about the stock rally from the perspective of valuations, however. "The more overbought the market becomes, the more it is going to have to correct later on," he said.

Among significant resistance levels -- or where the indices tend to run into selling pressure -- is 965 on the S&P 500, its recent high in August. "The going may get tougher around there," Briggs said.

In the meantime, seasonal factors may bode well for the market. The Dow has risen the day before and after Thanksgiving in seven of the past 10 years, according to the

Stock Trader's Almanac

.

According to Jeff Hirsch, head of the Hirsch Organization, which publishes the almanac, the shortened trading day Wednesday and the fact that most people take Friday off may be bullish trends.

On Tuesday, the Commerce Department will update its estimate for third-quarter GDP. It is expected to tick up to 3.2% from a preliminary estimate of 3.1%, according to consensus estimates. Since most economists are forecasting a slowdown in the fourth quarter, the report is unlikely to move markets.

"The report is not going to change anyone's opinion about the fourth quarter," said Josh Feinman, an economist at Deutsche Asset Management, when economists are expecting around 1.5% growth.

Nevertheless, Feinman is optimistic: "None of next week's reports are top-tier numbers that will radically change people's view -- especially in a shortened holiday week," he said. "But they will be consistent with the general impression that we went through a soft patch and the economic recovery continues."

Because of the market's rally, the consumer confidence index, slated for release on Tuesday, is forecast to tick up to 83 in November from 79.4 in October, when it came in at its lowest level in about nine years.

New home sales, also on Tuesday, are expected to edge down to 980,000 in October from 1.02 million in September, but the drop is unlikely to indicate a weakening in the very strong housing market.

Elsewhere, durable goods orders, on Wednesday, are predicted to be up 3% in October after being down 4.9% in September. And the Chicago Purchasing Managers Index, on Friday, is forecast to edge higher in November, but remain below 50 and at a level indicative of contraction in the factory sector.

Companies that are scheduled to report earnings next week include

Comverse Technology

(CMVT)

,

Dollar General

(DG) - Get Report

and

H&R Block

(HRB) - Get Report

.