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Stock Market Looks Ahead To January Effect; Tesla, Apple, Disney Cheer Battered Investors

Stock market indexes added to early gains at midday Thursday, lifting off deep lows. Oversold technical readings and the end of tax-selling sessions could keep buying interest growing into Friday’s year-end finale.


The year’s tax-loss selling season is coming to an end, ahead of next week’s clean slate. Hopefully, the January Effect will then kick into gear, lifting this year’s biggest losers off 52-week and multiyear lows.

The Dow Jones Industrial Average rallied 1.2% into the lunch hour while the S&P 500 added nearly 2%. Small caps attracted strong interest as positive seasonality approaches, lifting the Russell 2000 nearly 2.8%. The Nasdaq composite matched small-cap gains.

Nasdaq and NYSE volume nearly matched the first half of Wednesday’s session, as we creep closer to the long holiday weekend. U.S. stock exchanges will be closed on Monday for New Year’s Day.

The 10-year Treasury note yield slid nearly 0.7%, or 5 basis points, to 3.84%. Crude oil slipped about 1% to $78.10 per barrel. Asian and European markets were mixed in quiet holiday trading.

In the crypto world, Bitcoin slumped near November lows, trading around $16,600, while Coinbase (COIN) bounced off Wednesday’s all-time low at 31.83.

The S&P 500 and Nasdaq are trading below their 50-day moving averages. The Dow is holding just above its 50-day and 200-day moving averages, unlike other benchmarks, but trading too close for comfort.

Stock Market: Apple Lifts Off Bear Market Low

Dow component Apple (AAPL) sliced through double-top support around 130 on Wednesday, dropping to an 18-month low at 125.87. It remounted that broken level on Thursday morning, setting off small-scale buying signals. Its Relative Strength Rating has declined to a miserable 25, while the relative strength line is at the lowest since November 2021.

However, long-term support at and below 120 could limit downside pressure in coming weeks. AAPL shares are trading 3.4% higher Thursday.

The tech icon is expected to close out its September-ending fiscal year 2023 with minuscule 1% earnings growth. However, growth is expect to surge 10% in fiscal 2024. Mutual funds are still heavily invested, with ownership rising in each of the last three quarters.

Also in the Dow Jones, Walt Disney (DIS) rallied 4.5%, leading all other Dow index performers.

The second Avatar movie just past $1 billion in worldwide box office receipts. The film needs just $120 million to pass Doctor Strange in the Multiverse of Madness and Black Panther: Wakanda Forever for the top-performing Disney film of 2022.

Tesla Short Squeeze Thrills Battered Shareholders

Tesla (TSLA) sold off to around 104 in Wednesday’s premarket and bounced strongly after news that fund manager Cathie Wood bought 17,000 shares for her troubled ARK innovation ETF (ARKK).

The EV automaker surged over 122 in Thursday’s stock market action, continuing an oversold bounce. Tax-loss selling pressure is coming to an end while short sellers are getting too aggressive. This may set the stage for a torrid January short squeeze that lifts Tesla back above 160 or 170.

The best Tesla news so far this week? Elon Musk is keeping his mouth shut and avoiding more brand-killing tweets about his Twitter adventures.

Stock Market Movers And Shakers

The Innovator IBD 50 ETF (FFTY) sold off 1.3%, ignoring the broad-base rally wave. Growth stocks often get ignored when investors chase beaten-down opportunities.

Former IBD 50 component and market leader Cal-Maine Foods (CALM) fell nearly 15%, failing a breakout over a three-month consolidation pattern. It set off the 7% sell rule.

The egg producer reported a profit of $4.07 per share, missing estimates by 17 cents. Investors sold the stock aggressively, even though revenue rose 110% year over year to $801.7 million, beating consensus by nearly $3 million.

The company is benefiting from record average selling prices for eggs amid an outbreak of the highly pathogenic avian influenza.

IBD 50 component D.R. Horton (DHI) is forming the handle of a 262-day-old cup-with-handle base and is trading just 5% below the 92.55 buy point. DHI shares rose 1.8% in the first half.

Surprise — Homebuilders Are Back

Homebuilders have made a surprising appearance on the IBD 50 in recent weeks, suggesting many investors expect the group to bottom. It could be wishful thinking because monthly home sales data continues to disappoint, with 10 consecutive months of negative numbers.

However, low supply should keep a floor under homebuilders in coming months while positive demographics kick into gear. Specifically, millions of millennials have entered their nesting phases, with spouses and babies demanding larger living quarters. And in the end, many of these folks will have no trouble paying 6% or 7% 30-year mortgages.

Also in the IBD 50, Box (BOX) continues to build a constructive bull flag pattern that’s slipped back into the buy zone. For IBD readers, the pattern is also shaping up to be a three-weeks-tight formation. This follows a Dec. 12 breakout above a 29.55 buy point of a cup with handle. The pullback is about to test support at the 21-day exponential moving average. BOX shares rose 2.7% at midday.

Follow Alan Farley on Twitter at @msttrader.


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