Wall Street counts down to a new year

NEW YORK (CNNMoney.com) -- Wall Street is gearing up for an unpredictable week amid light trading volume, with many market participants on vacation and traders focused on the upcoming new year.

The stock exchange will be shuttered Friday for the New Year's Day holiday, and many traders will take the entire week off.

"It's always an interesting week, one you can't ever really predict," said Art Hogan, chief market analyst at Jefferies & Co.

With the major indexes on track to post double-digit percentage gains for the year, money managers this week will be protecting 2009's gains. Low trading volumes tend to compound small moves, causing market volatility.

"There's an old traders' adage: 'Never trade a light market, because you can get burned,'" Hogan said.

But, he added, some traders have been holding tight since November, and they may want to start positioning for 2010.

Little economic news is on tap, similar to last week's holiday-shortened schedule. If this week's performance follows that of the previous one, the market should drift higher barring major negative news, Hogan said.

Stocks closed at fresh highs for the year last week, capping a five day wining streak. The Dow posted a 0.5% weekly gain, while the S&P rose 1.8%. The Nasdaq added 4.3% last week.

Looking to 2010. The start of a new year on Wall Street traditionally brings the "January effect," in which stock prices tend to increase during the month.

And 2010 could ring in "the strongest January effect we've seen in quite some time," Hogan said, as economic reports and corporate earnings will have easy year-over-year comparisons because 2009's data were so dismal.

"But what's really going to dominate the first quarter is massive [mergers and acquisitions] activity," Hogan said. "There's a lot of cash on corporate balance sheets that can be put to use."

Hogan also said stocks should see more cash influx in 2010, on funds coming out of the bond market.

Monday: No economic reports on tap.

Tuesday: The Case-Shiller 20-City Composite index of home prices in major metropolitan areas for October is due shortly after the market opens. Briefing.com did not have estimates available for the week's reports.

At 10 a.m. ET, the Conference Board will release a reading on consumer confidence for December.

Wednesday: The Institute for Supply Management is scheduled to report data on Chicago-area manufacturing for December.

The weekly crude oil inventories report is due at 10:30 a.m. ET.

Thursday: The government's weekly jobless claims report is due before the market opens.

Friday: The stock exchange will be closed in observance of New Year's Day.