The Coming Week: Fear Takes a Holiday

But with preannouncement season in full swing, don't get too complacent.
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With a shortened session Monday and the Christmas holiday Tuesday, the coming week is bound to be quiet, as bull and bear alike lay aside their differences. But Wall Street pros say don't take it

too

easy.

For one thing, the fourth-quarter preannouncement season is in full gear, and someone's bound to use the cover of a shortened week to slip in some bad news. Also, a bundle of economic data is due Friday, including November

durable goods orders, the Conference Board's

consumer confidence index for December and

existing home sales for November.

"I think the market over the next few weeks is going to be influenced by the preannouncements we're going to see," says Peter Boockvar, equity strategist at Miller Tabak. "It's hard to know what company policy will be about issuing information next week, but people have to be prepared that it is possible," he says.

Averaging Out

The broad market and blue-chips

continued to rally last week, while tech stocks edged slightly lower on a series of profit warnings from the likes of telecom company

Motorola

(MOT)

, networker

Juniper

(JNPR) - Get Report

and chip outfit

Micron

(MU) - Get Report

, among others. Aluminum maker and

Dow

component

Alcoa

(AA) - Get Report

also warned, but investors didn't interpret it as a lousy sign for blue-chips everywhere.

The

Dow Jones Industrial Average rose 2.2% to 10,035.34, the

S&P 500 gained 1.9% to 1144.89, while the

Nasdaq Composite dropped 7 points to 1945.8.

What little trading takes place during the week will reflect a tug-of-war between those who want to cash in on the past several months gains and those who think there's more juice in the rally and don't want to miss any opportunities. Expect some "window-dressing" -- a tradition by which portfolio managers dress up their portfolios for year-end presentation to shareholders by buying winning stocks and selling losers. There's also the fabled "Santa Claus" effect: November and December are historically strong months for stocks.

While many strategists for weeks have been predicting a hearty pullback from the autumn run-up, one hasn't materialized. The week before last, all three major averages lost ground for the first week since mid-October. But the declines were mild. The Dow Jones Industrial Average fell 2.4% that week, while the S&P 500 lost 3% and the Nasdaq Composite shed 3.4%.

"The market is still in an uptrend," says Brian Belski, market strategist at U.S. Bancorp Piper Jaffray. "There are seasonal factors that are behind it. There are still some that want to participate in the market's resurgence." Belski expects the market to rise modestly through the end of the year and even into early January, "and then we'll see," he says.

Data Detail

Investors will be watching Friday's consumer confidence index to see if it confirms strength in the University of Michigan's data released last Friday. An important gauge of consumer spending patterns, confidence readings are on economists' radars too.

The

university's index for December came in surprisingly strong at 88.8, up from 83.9 the previous month, helping to fuel a rally Friday. Economists were expecting a reading of 85.7. The Conference Board's December reading is seen rising to 83.0 from 82.2.

New home sales for November are forecast to total 895,000, up from 880,000 in October, while existing home sales are expected to remain on par with the previous month at 5.17 million. "This market has been propped up by the home sector," says Belski. "We have to see a continuation of gains there."

Durable goods orders, which measure orders for big-ticket items such as washing machines and is a good indicator of demand, is also a key report. November orders are seen falling 5.5%, according to consensus forecasts. Though the report tends to be volatile, a 12.8% jump in October orders fueled some optimism about a turnaround.