Dow Jones futures fell lower after hours, along with S&P 500 futures and Nasdaq futures, heading into the last trading day of 2022. Major indices rallied on jobs data Thursday, Apple (AAPL) iPhone news and Tesla (TSLA) keep bouncing.
But the market is in a correction after breaking key levels on Wednesday. Thursday was just the first day of another attempted stock market rally. Investors should be very careful when entering new positions.
Medtempo (MEDP) flashed a buy signal on Thursday, while KLA Corp. (KLAC), Starbucks (SBUX), United Rental (URI), Mobile (MBLY), Super micro computer (SMCI) and Fluorine (FLR) are setting up. But these stocks are likely to rise or fall with the market.
Meanwhile, new guidelines from the Treasury Department stated that starting Jan. 1, many Model Y vehicles would not be eligible for U.S. tax credits without steep price cuts. But there is a loophole that allows all Tesla vehicles – and all EVs – to qualify for hefty tax credits at any cost.
Dow Jones Futures Today
Dow Jones futures fell 0.1% from fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.1%.
Market rally attempt
The stock market had a strong rebound, rallying in the morning and holding those gains in the afternoon.
The Dow Jones Industrial Average rose just over 1% on Thursday trading on the stock exchange. The S&P 500 index popped 1.75%. The Nasdaq composite and small-cap Russell 2000 were up 2.6%.
Initial jobless claims rose slightly more than expected in the week ending Dec. 24, but remain low at 225,000. Continuing claims rose 41,000 last week to 1.71 million, the highest since early February.
AAPL shares rose 2.8% to 129.61 after falling 3.1% to a bear market low on Wednesday. Apple’s iPhone production is recovering, according to The Wall Street Journal, after yet another report on recent iPhone output problems.
US crude oil prices fell 0.7% to $78.40 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.83%.
Below the best ETFsInnovator IBD 50 ETF (FFTY) rose 1.1%, while Innovator IBD Breakout Opportunities ETF (BOLT) climbed 0.9%. IShares Expanded Tech-Software Sector ETF (IGV) bounced 3%. VanEck Vectors Semiconductor ETF (SMH) popped 3.3%. Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) jumped 5.2% and ARK Genomics ETF (ARKG) 4.1%. Tesla stock is a major stock in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) advanced 1.9%. US Global Jets ETF (JETS) increased by 2.65%. SPDR S&P Homebuilders ETF (XHB) climbed 2.4%. The Energy Select SPDR ETF (XLE) rose just over 1% and the Financial Select SPDR ETF (XLF) climbed 1.4%. The Care Select Sector SPDR Fund (XLV) increased by 1.1%.
Shares of Tesla rose 8.1% to 121.82 after Wednesday’s 3.3% gain. TSLA stock is still down slightly for the week and 37% in December. After such a massive sell-off, Tesla stock was due for an uptick, but remains well below key levels.
Tesla Model Y tax credits
The Tesla bull case for 2023 relies heavily on new US tax credits of up to $7,500 under the Inflation Reduction Act, fueling high-margin domestic sales, offsetting weaker demand and prices in China and possibly Europe.
On Thursday, the Treasury Department released a list of vehicles eligible for US EV credits. Most versions of Model Y have a $55,000 price cap to receive EV credits, versus the $80,000 limit for SUVs, pickups, and vans.
But seven-seat Model Y vehicles, which haven’t been big sellers, are eligible up to $80,000.
The current base Model Y in the US starts at $65,990, Tesla should drop the price, perhaps reintroducing a lower range Model Y SR+ to get tax credits – unless it’s a seven-seat variant.
But there is another twist! The Treasury also said EVs rented by consumers could qualify for commercial EV tax credits. As a result, EVs assembled outside of North America are eligible, including the Hyundai Ioniq 5 and Kia EV6. Foreign automakers and U.S. allies in Europe and Asia had strongly objected to the assembly requirement in North America. But the lease rules also seem to allow any EV to be eligible at any price point, even with no income restrictions.
It will be interesting to see what Tesla and other automakers do with variants and pricing to maximize the benefit of the new tax credits.
But investors seemed pleased with the overall picture.
Stocks near buying points
Medpace shares rose 3.4% to 215.62, breaking a downward trendline as it recovered from the 21-day and 50-day lines. MEDP shares have consolidated nicely, forging a 16% deep consolidation next to the top of a long, deep base. The official buy point is 235, but Thursday offered an early entry.
KLAC stock climbed 3.3% to 379.86 and bounced off its 10-week line. A move above the 21-day line may present an opportunity to buy KLAC stock as a long-term leader.
The SBUX share rose 1.2% to 99.77, rebounding from the 10 weeks and crossing the 21 day mark. That could be early access to a short not-quite base. That, in turn, could be seen as a handle for a 17-month deep consolidation for Starbucks stock.
URI shares rose 1.2% to 356.21, recovering from the 21-day line. United Rentals is close to a buy point of 368.04 after a 13-month consolidation, which was briefly surpassed earlier this month. URI stocks have been trading very tight in their grip. The relative strength line is at a new high, reflecting the outperformance of United Rentals stock against the S&P 500 index.
MBLY shares rose 2.8% to 34.51, recovering from intraday undercutting of the 21-day moving average. Mobileye went public at the end of October at 21 per share. MBLY shares have shown strength in a weak market but, like many new IPOs, have taken major lashes. Stocks are starting to calm down. An aggressive investor might look for a break in the trend for an entry, but ideally Mobileye shares form a new base.
FLR shares rose 0.8% to 34.95, continuing to trade tight and working on a possible flat basethat would be one base-to-base pattern. Fluor’s revenues will grow 80% in 2023 as infrastructure stocks are strong in public and private projects.
The SMCI share climbed 1.6% to 81.91, recovering from the 50-day line but meeting resistance at the 21-day line. A strong move above the 21-day, which cleared Wednesday’s high of 84.35, could provide early access. Super Micro Computer stock, one of the strongest growth stocks of 2022, has been consolidating for several weeks after a earnings gap breakout on Nov. 2, rising to 95.22 on Nov. 25. SMCI shares could have a new base at the end of next week.
The stock market recovered strongly after Wednesday’s sell-off. After a plunge since the high of the day on December 13, major indices were definitely “on” for an uptick.
The question is whether they will be followed up in the coming days and weeks.
The market entered a correction on Wednesday as the Dow Jones undercut its 50-day moving average and the Nasdaq hit a two-year low.
So Thursday was just the first day of another attempted market rally. It takes a lot more to feel more confident.
The Dow Jones is back above the 50-day line, but still below the 21-day line.
The S&P 500 is still below its 50-day mark, with further resistance at its 200-day line and peaks in December.
While Tesla stock, Apple and many downed chip and software names led Thursday’s uptick, some leading stocks flashed buy signals or moved into position, such as MEDP stock.
What to do now
It’s tempting to re-enter the market when indices are rising sharply and there’s a sea of green between leading and notable stocks.
But since the bear market bottomed out on Oct. 13, breakouts and buy signals have largely disappeared.
Some sectors, including industrials, metals and medical, had held up better in recent weeks, so it’s easier to justify nibbling in this area, with specific stocks or sector ETFs. But keep any exposure small and be quick to take profits and limit losses.
In short, this is a market correction. Don’t operate by the rules of the bull market, especially the 2020 Mad Bull rules.
Invest as if you were driving on an icy, windy road, not an open highway. Drive carefully or wait at the side of the road.
It’s more of a time to plan your trip than to get out and about. Work on watchlists. A number of stocks from different sectors are showing strength.
Read The big picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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