The Coming Week: Highflying Stocks Set for Thanksgiving-Week Boost

The short week ahead is typically good for stocks -- and psychology is everything. But bonds shiver at the thought of climbing energy prices.
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Though

Newton's

first law might argue otherwise, there's been a fair amount of talk on Wall Street about how stocks will likely come off their relentless pace. The market has covered a lot of ground in the month or so since the October lows -- more, in fact, than it covered from the ringing in of the year to the highs reached this summer.

So it seems natural that stocks -- the poor dears -- should take a little break, if only to work off the lactic acid that's built up in their overworked muscles. Right?

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"Everybody's saying that, everybody knows that," said Bob Dickey, managing director of technical analysis at

Dain Rauscher Wessels

. "Which means that it's not going to happen, because everybody is so complacent." So while Dickey thinks that things have gotten overdone, he expects the market will continue to rise in the coming week.

He's got history on his side -- Thanksgiving week is typically a very good one for the market. Obviously, that shouldn't matter. It's a bit like saying that because the two times this writer ate noodles for lunch in the past week the market shot higher, you should hope that he eats noodles more often.

But things change when people start talking about that correlation. Like a reverse Heisenberg Uncertainty Principle, it starts to matter for the markets. Soon, TV crews are staked outside the offices of

TheStreet.com

every day.

CNBC

starts running a NoodleCam. And cheers erupt at the stock exchange when your cherished author ducks into the nearby ramen joint. Really.

Anyway, Dickey thinks the market probably has the momentum to carry it through at least one more week, though he worries that the ensuing pullback will be pretty violent.

"There is no doubt that at some point they will jerk the rug here," he said. "Everything is so extended that even some pretty normal pullbacks are going to look dramatic."

So far, a bit of a post-

Fed

falloff in the Treasury market has had little effect in stocks, and as long as yields remain in a range that investors have already seen, the bonds will likely stay out of the picture.

There is little out there to rile the Treasuries in the coming week. Data will be thin, and with Thanksgiving off and half-days on Wednesday and Friday, there's not going to be much trading.

Perhaps that's just as well for a market that's shifting gears. Tuesday's rate hike is likely the last one for at least three months -- because of year-end concerns, nobody expects the Fed to hike at its Dec. 22 meeting. "Policy becomes a secondary influence on the market in the period ahead," said Bill Sullivan, chief money-market economist at

Morgan Stanley Dean Witter

. "The most dominant factor will be perceptions surrounding the economy. That means we go back on the data hunt."

The key factor in the months ahead will be whether the economic reports begin to show real signs of moderation. "You should still assume the next move is a tightening unless the numbers slow down," said Don Fine, chief market analyst at

Chase Asset Management

.

The bond market will also be keeping a pretty close eye on oil prices, which recently broke to their highest levels in nearly three years. "Some of this backing and filling to higher yields has been in reaction to higher oil prices," said Sullivan. Moreover, in the minutes of its Oct. 5 meeting, released on Thursday, the

Federal Open Market Committee

wrote:

While oil prices, which had increased sharply this year, had changed relatively little recently and could move down in the future, secondary effects of the earlier increase on costs and prices in other sectors of the economy seemed likely.

Now that it jumped again, one imagines that there are fresh worries at the Fed that energy prices will fuel higher inflation.