Stocks are doing what they like to do best at this time of year. Prices are drifting upward, and day-to-day volatility is quieting down as we head into the Christmas holiday. Yesterday’s 62-point gain by the Dow fits the Yuletide mood as perfectly as “snow and mistletoe and presents ’round the tree.”

I’m in the holiday spirit too, so I’ve promised myself I won’t say anything today about challenges the financial markets may face in 2012.

Instead, I’ll give you a couple of year-end housekeeping suggestions, plus one potential positive surprise to watch for in the New Year.

Housekeeping

At year-end, investors often decide, for tax reasons, to dump investments that have done poorly. We’ve seen a fair amount of tax selling in recent days, as evidenced by the 119 NYSE issues that hit new 52-week lows on Monday (168 NYSE issues during the previous week).

I’m all in favor of recognizing losers and using them to offset capital gains elsewhere in your portfolio. In my experience, putting losers on the board is a liberating step. It lets me take profits on other investments — up to the limit of my realized losses — without fear of owing taxes to Uncle Sam.

Generally, though, I recommend taking losses when the market is close to its high for at least the past six months. It’s not an especially good idea to sell when the market indexes have rebounded only a little more than halfway between the low and high of the past six months — the situation today.

Last April was a great time to book some losses. A similar opportunity may come in the first few weeks of January. I’ll keep you posted.

Rather than sell anything at today’s levels, I would be more inclined to buy selectively among the names that have been knocked down excessively by year-end tax selling. One obvious candidate is Oracle (NASDAQ:ORCL).

It will probably take a quarter or two for Oracle, the world leader in enterprise software, to regain its business momentum after the slowdown the company reported Tuesday. Meanwhile, I look for Larry Ellison’s team to follow through on their plans — also announced Tuesday — to buy back up to $5 billion worth of additional stock.

With a stupendous $31 billion of cash and marketable securities on its balance sheet, Oracle has plenty of firepower to carry out its promise. What’s more, the shares sport an eye-popping free-cash-flow yield of 9.7%, making them an excellent investment for the corporate treasury. Let ‘er rip, Larry!

Turnaround Ahead?

Now, about  that positive surprise in 2012.  It probably won’t begin to show its face until the second quarter or perhaps even later, but I suspect that at some point public opinion will jell — and embrace major thematic changes in Washington.

I’m old enough (and still lucid enough!) to remember the stunning market turnaround in the spring of 1980. After a nasty nosedive during the first quarter, stocks soared once it became apparent that Americans had made up their mind to confront and defeat the inflation monster that was destroying our economy.

Can the nation gather up its collective willpower again, this time in support of fiscal responsibility and economic growth? We’re about to find out.

Merry Christmas!