Stocks could continue to drift higher Thursday, unless there's a shocker in the weekly jobless numbers or durable goods report.

Oliver Quillia for CNBC.com

Many traders expect a Santa Claus rally to drive the market higher on light volume through year end. But the big questions are what does the first quarter bring when absent traders return to their desks? And what do investors do to prepare for it?

"Everybody's just hoping nothing happens for the next six sessions," said one trader.

Jingle Bells?

Brown Brothers Harriman strategist Andrew Burkly is one who says Santa may not show this year. He said the Santa rally, where stocks typically see gains in the last five trading days of the year and first two days of the New Year, could be foiled by a tiring stock market and too much optimism.

In a note, he said his option-based sentiment measures show excessive optimism could limit gains near term. Also, divergences in internal breadth and momentum indicators show "a selective and tiring trend."

Burkly though says the market could move higher in the next couple of days. He has a near-term neutral view and expects range-bound trading in the S&P between 1,130 and 1,140. But he also sees the market hitting significant resistance at the high end of that range. At the same time, there is strong support below that level and a decline could be limited.

What to Watch

Thursday's data releases are expected at 8:30 a.m. Durable goods orders for November are expected to show an increase of 0.5 percent. The weekly jobless claims are expected to be 470,000 but some economists say they could even be higher because of seasonal factors.

Markets close at 1 p.m. for the Christmas holiday. Traders are also watching Washington, where the Senate is expected to approve the health care bill in a vote starting at 7 a.m.

Stocks Wednesday closed higher after meandering most of the day. The Dow was up 1 at 10,466, and the S&P 500 was up 2 at 1120. Nasdaq, propelled by tech, rose 16 to 2269. The market was initially rattled by a disappointing 11.3 percent drop in November new home sales.

Treasury prices slipped, as the yield on the two-year rose to 0.921 percent and the 10-year rose to 3.748 percent.

"People could show up to trade durable goods," said Ian Lyngen, senior government bond strategist at CRT.

"If you look at what happened today, we had a notable miss in personal spending and income, a big takedown in new home sales. We got a relatively modest bid, and we just ground sideways. That would suggest to me that there might be some short-lived price action on a significant miss tomorrow, but it will certainly not hold into the new year."

Lyngen said the market is focusing on next week's $118 billion in 2-year, 5-year and 7-year note auctions.

"It's a weird session. The market has backed up significantly over the course of the week. There was a little bit of a correction here over the last 24 hours, but there's not really a lot of conviction or volume behind the trade which suggests to us that the market is done until Monday's 2-year auction," he said.