The stock market looks ahead to the January effect; Tesla, Apple, Disney cheer on mistreated investors

Stock market indices contributed to early gains at midday Thursday, lifted by deep declines. Oversold technical readings and the end of tax selling sessions could continue to increase buying interest into Friday’s year-end.

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This year’s tax loss selling season is drawing to a close, ahead of next week’s clean sheet. Hopefully the January effect will then kick in, lifting the year’s biggest losers from 52-week and multi-year lows.

The Dow Jones Industrial Average rose 1.2% entering lunch while the S&P 500 rose 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. US stock exchanges will be closed on Monday for New Year’s Day.

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

In the crypto world, Bitcoin fell near November lows, trading around $16,600, while Coin base (COIN) returned Wednesday’s record low of 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 is trading too close for comfort.

The stock market: Apple lifts from the bear market low

Dow component apple ( AAPL ) cut through double-top support around 130 on Wednesday, falling to an 18-month low of 125.87. It repaired the broken level on Thursday morning, triggering small buy signals. Its relative strength rating has dropped to a miserable 25, while its relative strength rating is at its lowest since November 2021.

However, long-term support at and below 120 may limit the downside pressure in the coming weeks. AAPL stock traded 3.4% higher on Thursday.

The tech icon is expected to end fiscal 2023, which ends in September, with minimal 1% revenue growth. However, growth is expected to increase by 10% in fiscal year 2024. Mutual funds remain heavily invested, with ownership increasing in each of the last three quarters.

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

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

Tesla Short Squeeze excites battered shareholders

Tesla ( TSLA ) traded at around 104 in Wednesday’s premarket, bouncing sharply after news that fund manager Cathie Wood bought 17,000 shares for her troubled ARK innovation ETF ( ARKK ).

The EV carmaker rose over 122 in Thursday’s stock market action, continuing an oversold bounce. Tax-loss selling pressure comes to an end as short sellers get too aggressive. This could set the stage for a fiery short squeeze in January 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

Innovator IBD 50 ETF ( FFTY ) sold off 1.3%, ignoring the broad rally wave. Growth stocks are often ignored when investors chase distressed opportunities.

Former IBD 50 component and market leader Cal-Maine Foods ( CALM ) fell nearly 15%, failing to break out of a three-month consolidation pattern. That triggered the 7% sales rule.

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

The company is benefiting from record selling prices for eggs amid an outbreak of the highly pathogenic bird flu.

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

Surprise — homebuilders are back

Homebuilders have made a surprise appearance on the IBD 50 in recent weeks, suggesting many investors expect the group to bottom out. That may 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 the coming months as positive demographics kick in. Specifically, millions of millennials have entered the nesting stages, with spouses and babies demanding larger living quarters. And finally, many of these people will have no problem paying 6% or 7% 30-year mortgages.

Also in IBD 50, Box (BOX) continues to build a constructive bull-flag pattern that has slipped back into the buy zone. For IBD readers, the pattern is also shaping up to be a three-week tight formation. This follows a breakout on December 12 above a 29.55 cup handle buy point. 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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The market recovers the key level; Tesla doubles American discount