Stock Market Burned Out After Weekly Reversal; Santa Rally Vs. Tax Selling; Tesla Brand Destruction

Stock Market Burned Out After Weekly Reversal; Santa Rally Vs. Tax Selling; Tesla Brand Destruction

Stock market indexes traded lower at the start of Friday’s quadruple-witching extravaganza, stuck in the bearish selling wave set into motion after Tuesday’s CPI report. Tesla (TSLA) CEO Elon Musk added to the EV automaker’s brand destruction, selectively banning high-profile media critics after a doxxing episode.


The S&P 500 ETF (SPY) booked above-average selling volume Tuesday through Thursday, signaling a retreat by the smart money crowd.

Investors should raise cash at this time, keeping market exposure below 20% of assets. Also consider moving to the sidelines completely, resetting ahead of the 2023 market environment.

The Dow Jones Industrial Average lost 0.3% in the first hour while the S&P 500 shed 0.3%. Tech stocks failed to hold opening gains, dropping the Nasdaq composite 0.6%.  The Russell 2000 and small caps attracted no interest, dropping the index more than 1.0%.

Volume on the Nasdaq and the NYSE surged by double-digit percentages compared to the first hour on Thursday. Volume typically rises on Fridays of an options expiration week.

The 10-year Treasury note yield rose more than 2% to 3.53%. Crude oil rolled over, down more than 2.5% to $73.30 per barrel.

Asian markets were mixed, with the Hang Seng index lifting 0.6% while other bourses slumped. Europe traded lower across the board, posting losses of around 1%.

There were few economic reports. The IHS market manufacturing PMI and market services PMI both missed expectations, continuing the theme of a hard economic landing.

Bitcoin stumbled overnight, undercutting $17,000. Coinbase (COIN) hit another all-time low after breaking May support earlier this week.

Musk Bans Mainstream Journalists For Doxxing

Tesla’s Musk banned high-profile and mostly liberal journalists from CNN, The New York Times and The Washington Post for publishing real-time coordinates on his airplane movements.

“Doxxing,” or targeting individuals in real-time, is against Twitter terms of service but the selective bans triggered a chorus of outrage. Ironically, these actions bring to mind similar bans by the old Twitter regime, directed almost exclusively against conservative media.

TSLA stock sold aggressively early Friday, dropping nearly 4% and below Thursday’s bear market low of 153.28. Brand destruction for the EV automaker is ongoing, forcing a major reevaluation of long-term sales targets.

Even so, the unrelenting stream of bad news has attracted a host of armchair short sellers, setting the stage for shakeouts and short squeezes.

Santa Claus Rally Or Tax Loss Selling Into Year’s End?

“If Santa Claus should fail to call, bears may come to Broad and Wall,” Yale Hirsch, founder of The Stock Trader’s Almanac, said in 1972.

Next week marks the start of Santa Rally seasonality for the stock market, peaking between Christmas and the first two trading days of 2023.

So hopes are rising that bulls will lift major indexes off lows into year’s end, easing annual losses. Window dressing is closely tied to this annual phenomenon, with fund managers scooping up the year’s top performers, in an effort to tidy up their performance reports to investors.

Hirsch researched S&P 500 performance between Christmas and New Year’s Day between 1951 and 1971, finding average gains of 1.5%. According to Facet Wealth, the index has risen an average 1.3% since that time, positive in 34 of the last 45 years.

Of course, there are no guarantees that Santa Claus will make his annual appearance. But individual investors are crossing their fingers after a tumultuous and painful 2022.

End-of-year tax loss selling pressure will be a major headwind in the next two weeks, and could be the deciding factor. Many investors are sitting on big losses and could sell some or all of their positions to reduce 2022 tax bills. Fortunately, this phenomenon flips into reverse in early January, when the same folks scoop up the prior year’s biggest losers, in an attempt to build stronger annual returns.

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Stock Market Movers And Shakers

IBD Leaderboard stock Dexcom (DXCM) is 8% below the 123.46 buy point from a flat base after two days of lower prices, and just violated the 21-day line. Dexcom stock fell 2% early Friday.

Cathie Wood stock Exact Sciences (EXAS) rocketed 21.8% after rival Guardant Health (GH) disclosed positive results in a three-year trial evaluating the performance of its blood-based test for colorectal cancer. The struggling fund manager holds 2.59 million Exact shares, according to a Q3 filing.

Meta Platforms (META) rallied 4.2% after JPMorgan analyst Doug Anmuth raised the social media giant to overweight, raising the price target to 150. META stock has been testing resistance at the 50-day moving average since the end of November. It is still trading close to a seven-year low but the Accumulation/Distribution Rating has improved to a healthy “B.”

Nasdaq 100 component Adobe (ADBE) rallied 4.8% after beating fiscal Q4 2022 earnings estimates and reporting in-line revenue. Investors cheered bullish guidance for the first quarter of 2023. However, ADBE stock is still trading close to a two-year low, despite the early uptick.

U.S. Steel (X) rose 4.7% after raising Q4 EPS guidance above estimates. However, analyst consensus currently forecasts major declines in profitability in 2022 and 2023.

Follow Alan Farley on Twitter at @msttrader.


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