Attempted Stock Market Rally Begins; Tesla jumped on EV credit guidelines
Dow Jones futures edged lower after hours, along with S&P 500 futures and Nasdaq futures, heading into the final trading day of 2022. The major indexes rose sharply on Thursday on jobs data, An apple (AAPL) iPhone news and Tesla (TSLA) keeps bouncing.
But the market is in correction after breaking through key levels on Wednesday. Thursday marked just the first day of another attempted stock market rally. Investors should be very careful when taking new positions.
Medpace (MERP) flashes a Thursday buy signal while KLA Corp. (CLUTCH), Starbucks (SEX), United on loan (URI), Mobileye (MBLY), Super micro computer (SMCI) and Fluorine (FLR) are set. But these stocks are likely to rise or fall with the market.
Shares of MEDP, Fluor and United Rentals are included IBD ranking. KLAC shares included IBD long-term leaders. MBLY shares are at IBD 50. KLA Corp. and URI shares are at IBD Big Cap 20.
Meanwhile, new guidance from the Treasury Department says many Model Y cars will not be eligible for U.S. tax credits starting Jan. 1 without steep price cuts. But there’s a loophole that could allow all Tesla vehicles — and any EVs — to qualify for hefty tax credits at any cost.
Dow Jones futures today
Dow Jones futures were down 0.1% at fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.1%.
Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.
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An attempt to rally the market
The stock market had a strong rebound, rising in the morning and then paring those gains in the afternoon.
The Dow Jones Industrial Average rose just over 1% on Thursday Exchange Trading. The S&P 500 jumped 1.75%. The small-cap Nasdaq composite and Russell 2000 jumped 2.6%.
Initial jobless claims rose slightly more than expected in the week ended Dec. 24, but remained low at 225,000. Continuing claims rose by 41,000 to 1.71 million in the latest week, the highest level since early February.
AAPL shares jumped 2.8 percent to 129.61 after falling 3.1 percent on Wednesday to a bear market low. Apple iPhone production is rebounding, according to The Wall Street Journal, following yet another report of recent iPhone production problems.
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%.
Avg the best ETFsInnovator IBD 50 ETF (FFTY) rose 1.1%, while the Innovator IBD Breakout Opportunities ETF (BOOTH) rose 0.9%. iShares Expanded Tech-Software Sector ETF (IGV) rebounded by 3%. VanEck Vectors Semiconductor ETF (SMH) jumped 3.3%. Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) jumped 5.2% and the ARK Genomics ETF (ARKG) 4.1%. Tesla stock is a major holding in Ark Invest’s ETF.
SPDR S&P Metals & Mining ETF (XME) advanced by 1.9%. US Global Jets ETF (STREAMS) rose 2.65%. SPDR S&P Homebuilders ETF (XHB) rose 2.4%. Energy Select SPDR ETF (XLE) rose just over 1%, and the Financial Select SPDR ETF (45) rose 1.4%. Select Healthcare Sector SPDR Fund (XLV) grew by 1.1%.
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Tesla shares jumped 8.1% to 121.82 after rebounding 3.3% on Wednesday. Shares of TSLA are still down slightly for the week and down 37% in December. After such a huge selloff, Tesla stock should have rallied, but remains well below key levels.
Tesla Model Y Tax Credits
Tesla’s 2023 bull case relies heavily on new US tax credits of up to $7,500 under the Inflation Reduction Act, boosting high-margin domestic sales, offsetting weaker demand and prices in China and possibly Europe.
On Thursday, the Treasury Department listed vehicles that are eligible for EV credits in the US. Most versions of the Model Y will have a $55,000 cap for receiving EV credits, versus an $80,000 cap for SUVs, pickups and vans.
But Model Y seven-seaters, which haven’t sold much, will be eligible up to $80,000.
With the current base Model Y starting at $65,990 in the U.S., Tesla will have to lower the price, perhaps by reintroducing a lower-end Model Y SR+, to get the tax credits — unless it’s a seven-seat variant.
But there’s another twist! The Treasury Department also said that EVs leased by consumers can qualify for commercial EV tax credits. That makes EVs assembled outside of North America eligible, including the Hyundai Ioniq 5 and Kia EV6. Foreign automakers and U.S. allies in Europe and Asia strongly objected to the North American assembly requirement. But it appears the lease rules allow any EV to qualify at any price, with no income restrictions.
It will be interesting to see what Tesla and other automakers do in terms of options and pricing to maximize the benefits of the new tax credits.
But investors seemed happy with the overall picture.
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Stocks near points of purchase
Shares of Medpace rose 3.4% to 215.62, breaking a downtrend after recovering from its 21-day and 50-day lines. MEDP shares have been consolidating nicely, forging a 16% deep consolidation to the top of a long, deep base. The official one point of purchase is 235, but Thursday offered an early entry.
Shares of KLAC rose 3.3% to 379.86, bouncing off their 10-week line. A move above the 21-day line could offer a buying opportunity for KLAC shares as a long-term leader.
Shares of SBUX rose 1.2% to 99.77, rebounding from its 10-week high and breaking above its 21-day high. This could be an early entry into a short not quite base. This, in turn, can be seen as a vehicle for a 17-month deep consolidation for Starbucks stock.
Shares of URI advanced 1.2% to 356.21, bouncing off a 21-day line. United Rentals is near a buy point at 368.04 on a 13-month consolidation briefly reached earlier this month. URI stock is trading very tightly in its handle. The line of relative strength is at a new high, reflecting the outperformance of United Rentals shares against the S&P 500 index.
Shares of MBLY rose 2.8% to 34.51, rebounding from an intraday dip at 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, there were big moves. Stocks are starting to calm down. An aggressive investor may look for a trend line breakout to enter, but ideally, Mobileye stock will make a new base.
Shares of FLR rose 0.8% to 34.95, continuing to trade tight, working on a possible flat basewhich would be a model base on base. Fluor’s earnings are expected to grow 80% in 2023 as infrastructure stocks show strength in public and private projects.
Shares of SMCI rose 1.6% to 81.91, bouncing off the 50-day line but finding resistance at the 21-day. A strong move above the 21-day, clearing Wednesday’s high of 84.35, could suggest an early entry. One of 2022’s top-grossing stocks, Super Micro Computer shares, has been consolidating for several weeks after breaking the earnings gap on Nov. 2, with the advance continuing to 95.22 on Nov. 25. SMCI shares may have a new base late next week.
The stock market saw a solid recovery after Wednesday’s selloff. After falling after the intraday high of December 13, the major indexes were definitely due for a rebound.
The question is whether they will follow through in the coming days and weeks.
The market went into correction on Wednesday after the Dow Jones breached its 50-day moving average and the Nasdaq set a two-year closing low.
So Thursday was just one day of another market rally attempt. It will take a lot more than that to make you 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, with additional resistance at the 200-day line and December highs.
While shares of Tesla, Apple and many battered chip and software names led Thursday’s rally, some leading stocks gave flash buy signals or moved into position, such as shares of MEDP.
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What should we do now
It’s tempting to get back into the market when the indexes are up sharply and there’s a sea of green among the leading and noteworthy stocks.
But since the bear market bottomed on Oct. 13, breakouts and buy signals have largely disappeared.
Some sectors, including industrials, metals and medicals, have held up better in recent weeks, so it’s easier to justify a bite in those areas, either with specific stocks or sector ETFs. But keep any exposure small and rush to take profits and cut losses.
Bottom line: This is a market correction. Don’t work by bull market rules, especially 2020’s mad bull-like rules.
Invest like you’re driving on an icy, windy road, not the open highway. Proceed carefully or wait for him on the side of the road.
It’s time to plan your trip rather than venture out. Work on watch lists. A number of stocks across sectors are showing strength.
Read it The big picture every day to stay in sync with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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