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Very quietly, and with only modest success, traders resumed the hunt for the elusive year-end rally on Monday. But major averages traded in tight intraday ranges as a holiday atmosphere descended on Wall Street.


Dow Jones Industrial Average

closed down 0.2% to 8493.29 after trading as high as 8554.04 and as low as 8462.64. The

S&P 500

gained 0.2% to 897.38 vs. its intraday high of 902.43 and low of 892.26. Meanwhile, the

Nasdaq Composite

rose 1.4% to 1381.70, ending near its intraday high of 1384.30.

About 1.1 billion shares traded on the Big Board, down from 1.8 billion on Friday and vs. the annual daily average of 1.45 billion. Trading activity is expected to diminish further as the week progresses; U.S. financial markets close early Tuesday in anticipation of Wednesday's Christmas Day observance.

Monday's action suggests Friday's high-volume gains were more the result of so-called quadruple witching expiration of options and futures, rather than the onset of the much-anticipated "Santa Claus rally." Hopes for such a move go beyond mere confirmation of traditional seasonal patterns, or even traders' short-term positioning.

In addition, another old Wall Street saying has been on the minds (if not lips) of many participants: "If Santa Claus should fail to call, the bears may come to Broad and Wall." Or, in this case, will stay there.

"Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet

and respectable rally within the last five

trading days of the year and the first two in January," according to

The Stock Traders' Almanac

. But "Santa's failure to show tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices."

Jeffrey Saut, chief equity strategist at Raymond James, cited expectations for year-end strength (and implications of its failure) in recommending traders buy indices at the open on Dec. 16.

"Clearly, last week's action was disappointing," Saut wrote Monday. "Still, we are hopeful that the upside will play this week and next given the positive seasonality."

The last two weeks of December have produced average gains of 1.5% for the Dow since 1960, he noted. If historic trends hold, Thursday's closing low of Dow 8364.80 "should not be violated," Saut said, using that level as a stop-loss for a position in the

Dow Diamonds


. Furthermore, because the Dow closed at its 50-day moving average of 8511 on Friday, it "could track toward its 200-day" moving average of 9071 in the near term, he said.

Meanwhile, others contend all of the hype and expectation for a year-end rally are further evidence that investor optimism remains too high.

"There is precious little fear.

Instead, there is a very pronounced 'relax, don't worry' attitude, despite the third bummer year posted by the markets," commented Phil Erlanger, editor of

Erlanger's Squeeze Play

. "Our expectations are not so rosy."

Rather than the final two weeks of 2002, Erlanger is focusing on "how the market shapes up in January," which, he said, is "more important from a broader perspective than the 'Santa Claus rally.' "

Last January, he recalled, "the market failed miserably -- an accurate precursor to the year as a whole."

Erlanger didn't make an explicit forecast for January 2003. However, he did observe that short interest in the Dow Diamonds is at its lowest level since 2000.

"If I was a bull, I'm starting to get pretty nauseous," he said. "There was a great jump off the October lows, but mainly due to short-covering after they'd made a fortune. Now, shorts are gone, the secular trend is still bearish, and you're up against a mountain of resistance."

Erlanger, formerly head of technical analysis at Fidelity Investments, stressed that he's "not Scrooge" and would rather be bullish. But "because expectations are so bullish and positive," a year-end rally is largely already priced into shares, he suggested. "Something nirvana-esque has got to happen to get the market's picture to change. And if there's a larger negative fundamental shoe to drop, we're in deep doo-doo."

In other words, be especially careful when reaching into stockings labeled "Stocks 2003."

Micro Trumps Macro

The Comp's relative (and absolute) strength came thanks to gains in big-cap tech names such as







Applied Materials


. The Nasdaq 100 rose 1.9% and the Philadelphia Stock Exchange Semiconductor Index gained 2.7%.




$235 million buyout offer for



raised hopes for further consolidation in the still-overloaded tech sector.

Both the Dow and S&P succumbed to weakness in financial and retailing shares.

The former slumped after



, which shed 1.2%, said it will set aside $1.5 billion in the fourth quarter to pay for settlement of a conflicts-of-interest probe, and

Bank of America


said it will set aside $1.2 billion because of bad loans. The Philadelphia Stock Exchange/KBW Bank Index fell 0.5%.

The latter weakened amid ongoing evidence of lackluster holiday sales. The S&P Retail Index fell 2.5% and

Tweeter Home Entertainment


tumbled 33.3% after becoming the latest consumer electronics chain to warn of disappointing results.



was the biggest negative drag on the Dow.

The sluggish reports from retailers were contrasted by the day's economic data. The Commerce Department reported consumer spending rose 0.5% in November, its biggest increase in four months, while personal income increased 0.3%. Separately, the final tally for the University of Michigan's consumer sentiment index for December was 86.7, down from a preliminary reading of 87, but slightly above consensus estimates and up from 84.2 in November.

If anything, the only "macro" development that seemed to move financial markets Monday was another spike in crude prices. With the strike in Venezuela entering its fourth week and an acceleration of U.S. preparations for a possible invasion of Iraq, crude futures rose 4.8% to $31.75 per barrel.

Meanwhile, gold resumed its upward path, gaining 1.4% to $345.60 per ounce.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.