Dow Jones futures fell after hours, along with S&P 500 and Nasdaq futures, as the last trading day of 2022 approached. Major indexes rose sharply on Thursday on data jobs, Apple (AAPL) iPhone news and You’re here (TSLA) continues to rebound.
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But the market is in a correction after breaking key levels on Wednesday. Thursday marked only the first day of another attempt at a stock market rally. Investors should be very careful before taking new positions.
Medpace (MEDP) issued a buy signal on Thursday, while KLA Corp. (KLAC), Starbucks (UNDER), United rentals (URI), mobileye (MBLY), super microcomputer (SMCI) and Fluorine (FLR) are set up. But these stocks will likely rise or fall with the market.
MEDP, Fluor and United Rentals shares are on the IBD ranking. KLAC stock is on IBD Long-Term Leaders. MBLY shares are on the IBD 50. KLA Corp. shares are on the IBD 50. and URIs are on the IBD Big Cap 20.
Meanwhile, new Treasury Department guidelines said many Model Y vehicles would not be eligible for U.S. tax credits starting Jan. 1 without deep price cuts. But there is a loophole that can allow all Tesla vehicles – and all electric vehicles – to benefit from steep tax credits at any cost.
Dow Jones Futures Today
Dow Jones futures were down 0.1% from fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.1%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Attempt to rally the market
The stock market had a strong rebound, moving up in the morning and then holding onto those gains in the afternoon.
The Dow Jones Industrial Average rose just over 1% in trading Thursday. The S&P 500 index jumped 1.75%. The Nasdaq composite and the small-cap Russell 2000 jumped 2.6%.
Initial jobless claims rose slightly more than expected in the week ended December 24, but remain weak at 225,000. Continuing claims climbed 41,000 to 1.71 million in the past week, the most high since early February.
AAPL stock jumped 2.8% to 129.61 after slipping 3.1% on Wednesday to a bear market low. Apple’s iPhone production is rebounding, according to the Wall Street Journal, following another report on recent iPhone production issues.
U.S. crude oil prices fell 0.7% to $78.40 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.83%.
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Among the top ETFs, Innovator IBD 50 ETF (FFTY) rose 1.1%, while Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.9%. IShares Expanded Tech-Software Sector ETF (IGV) rebounded 3%. ETF VanEck Vectors Semiconductor (SMH) jumped 3.3%. Reflecting more speculative stocks, ARK Innovation ETF (ARKK) jumped 5.2% and ARK Genomics ETF (ARKG) 4.1%. Tesla stock is a major holding in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) gained 1.9%. The US Global Jets ETF (JETS) climbed 2.65%. The SPDR S&P Homebuilders ETF (XHB) climbed 2.4%. The Energy Select SPDR (XLE) ETF rose just over 1% and the Financial Select SPDR (XLF) ETF climbed 1.4%. The SPDR health care sector fund (XLV) rose 1.1%.
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Tesla Stock
Tesla stock jumped 8.1% to 121.82 after Wednesday’s 3.3% rebound. TSLA stock is still down slightly for the week and down 37% in December. After such a massive selloff, Tesla stock was expected to rebound, but remains well below key levels.
Tesla Model Y Tax Credits
The Tesla bull case for 2023 hinges heavily on new U.S. tax credits of up to $7,500 under the Cut Inflation Act, fueling high-margin domestic sales, offsetting higher demand and prices weak in China and perhaps in Europe.
On Thursday, the Treasury Department listed vehicles eligible for US EV credits. Most Model Y versions will have a price cap of $55,000 to receive EV credits, compared to the $80,000 cap for SUVs, pickups and vans.
But seven-seat Model Y vehicles, which haven’t been big sellers, will be eligible for up to $80,000.
The current base Model Y in the US starts at $65,990, Tesla would have to cut the price significantly, perhaps by reintroducing a lower range Model Y SR+, to get tax credits – unless it it is a seven-seater variant.
But, there is yet another twist! The Treasury also said consumer-leased electric vehicles are eligible for commercial electric vehicle tax credits. This makes electric vehicles assembled outside of North America eligible, including the Hyundai Ioniq 5 and Kia EV6. Foreign automakers and U.S. allies in Europe and Asia had strongly opposed the North American assembly requirement. But the rental rules also appear to allow any electric vehicle to qualify at any price, with no income limit either.
It will be interesting to see what Tesla and other automakers do with variants and pricing to maximize the benefits of the new tax credits.
But investors seemed happy with the overall picture.
TSLA stock rose slightly.
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Stocks close to buy points
Medpace stock rose 3.4% to 215.62, breaking a downtrend line as it rebounded from its 21-day and 50-day line. MEDP stock has consolidated well, forging a deep 16% consolidation next to the top of a long and deep bottom. The official buy point is 235, but Thursday offered early entry.
KLAC stock climbed 3.3% to 379.86, rebounding from its 10-week line. A move above the 21-day line could offer a chance to buy KLAC shares as the long-term leader.
SBUX stock rose 1.2% to 99.77, rebounding from its 10-week high and surpassing its 21-day high. It could be an early entry into a not quite short base. That in turn could be seen as a handful to a 17-month deep consolidation for Starbucks shares.
URI stock rose 1.2% to 356.21, rebounding from the 21-day line. United Rentals is close to a buy point of 368.04 on a 13-month consolidation, briefly broken at the start of the month. The action URI traded very tightly in its grip. The relative strength line hits a new high, reflecting the outperformance of United Rentals stock versus the S&P 500 index.
MBLY stock rose 2.8% to 34.51, rebounding from an intraday undercut of its 21-day moving average. Mobileye’s IPO went public in late October at $21 per share. MBLY stock showed strength in a weak market, but like many new IPOs, it saw big saw moves. Stocks are beginning to calm down. An aggressive investor might look for a trendline break for entry, but ideally Mobileye stock will forge a new base.
FLR stock edged up 0.8% to 34.95, continuing to trade tightly, working on a possible flat basis, which would be a base to base setup. Fluoride earnings are expected to increase 80% in 2023 as infrastructure stocks strengthen in public and private projects.
SMCI stock rose 1.6% to 81.91, bouncing off the 50-day line but finding resistance at 21 days. A strong move above the 21-day clearing Wednesday’s high at 84.35 could offer early entry. One of the strongest growth stocks of 2022, Super Micro Computer stock has been consolidating for several weeks after an earnings gap breakout on Nov. 2, with the advance continuing to 95.22 on Nov. 25. SMCI stock could have a new base next weekend.
Market analysis
The stock market rebounded strongly from Wednesday’s selloff. After falling from the Dec. 13 intraday high, the major indices were definitely “due” to a rebound.
The question is whether they will follow through in the days and weeks to come.
The market entered a correction on Wednesday as the Dow undercut its 50-day moving average and the Nasdaq hit a two-year closing low.
Thursday was therefore only the first day of a new attempt to rally the market. It will take a lot more to feel more confident.
The Dow Jones is back above its 50-day line, but still below its 21-day line.
The S&P 500 is still below its 50-day mark, with further resistance at its 200-day line and December highs.
While shares of Tesla, Apple and many chip and software names felled led Thursday’s rebound, some high-profile stocks gave buy signals or positioned, such as MEDP stock.
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What to do now
It’s tempting to jump back into the market when the indices are up sharply and there’s a sea of green among the major and notable stocks.
But since the bear market bottomed on Oct. 13, breakouts and buy signals have largely disappeared.
Some sectors, including industrials, metals and medicals, had held up better in recent weeks, so it is easier to justify snacking in these areas, whether with specific stocks or sector ETFs. But keep any exposure small and be quick to take profits and cut losses.
Bottom line: This is a market correction. Do not operate by bull market rules, especially the mad bull rules of 2020.
Invest as if you were driving on an icy, windy road, not an open highway. Proceed carefully or wait for him on the side of the road.
This is more the time to plan your trip than to venture out. Work on watch lists. A number of stocks across various sectors are showing strength.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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