Stock Market Rally Attempt Begins; Tesla Jumps Amid EV Credit Guidelines
Dow Jones futures edged lower after hours, along with S&P 500 and Nasdaq futures, heading into the last trading day of 2022. Major indexes rose strongly Thursday on jobs data , Apple ( AAPL ) iPhone news and Tesla ( TSLA ) continuing to bounce .
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But the market is in a correction after breaking key levels on Wednesday. Thursday marked just the first day of a new push to rally the stock market. Investors should be very careful in taking new positions.
Medpace (MEDP) flashed a buy signal on Thursday, while KLA Corp. ( KLAC ), Starbucks ( SBUX ), United Rentals ( URI ), Mobileye ( MBLY ), Super Micro Computer ( SMCI ), and Fluor ( FLR ) are setting up. But these stocks are likely to rise or fall with the market.
MEDP, Fluor and United Rentals stock are on IBD’s leaderboard. KLAC shares are in the IBD Long-Term Leaders. Shares of MBLY are in the IBD 50. Shares of KLA Corp. and URI are in the IBD Big Cap 20.
Meanwhile, new Treasury Department guidance stated that many Model Y vehicles will not qualify for US tax credits starting Jan. 1 without steep price cuts. But there’s a loophole that could allow all Tesla vehicles — and every EV — to qualify for huge tax credits at any price.
Dow Jones Futures Today
Dow Jones futures fell 0.1% against fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.15%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Attempt to Rally the Market
The stock market made a strong comeback, rallying in the morning and then holding those gains in the afternoon.
The Dow Jones Industrial Average rose a little more than 1% in Thursday’s stock trading. The S&P 500 index fell by 1.75%. The small-cap Nasdaq composite and Russell 2000 rose 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 since early February.
AAPL shares rose 2.8% to 129.61 after sliding 3.1% on Wednesday at a market low. Apple’s iPhone production is recovering, according to The Wall Street Journal, following another report about 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%.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.1%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.9%. The ISShares Technology Software Expanded Sector ETF ( IGV ) rose 3%. VanEck Vectors Semiconductor ETF ( SMH ) rose 3.3%. Reflecting the more speculative story stocks, the ARK Innovation ETF ( ARKK ) rose 5.2% and the ARK Genomics ETF ( ARKG ) 4.1%. Tesla stock is a large holding in all of Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) advanced 1.9%. US Global Jets ETF (JETS) rose 2.65%. The SPDR S&P Homebuilders ETF ( XHB ) rose 2.4%. The Energy Select SPDR ETF ( XLE ) was up just over 1% and the Financial Select SPDR ETF ( XLF ) was up 1.4%. The Healthcare Select Sector SPDR Fund ( XLV ) rose 1.1%.
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Stock Tesla
Tesla shares 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 big selloff, Tesla shares were expected to rise, but remain well below key levels.
Model Y Tesla Tax Credit
Tesla’s bull case for 2023 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 the vehicles that qualify for US EV credits. Most versions of the Model Y will be priced at $55,000 to qualify for EV credits, versus the $80,000 limit for SUVs, trucks and vans.
But seven-seat Model Y vehicles, which haven’t been big sellers, will be eligible for up to $80,000.
With the current base Model Y starting at $65,990 in the US, Tesla will have to drop the price, perhaps reintroducing a lower-range Model Y SR+, to get the tax credit – unless it’s a seven-seat variant.
But there is another twist! Treasury also said that electric vehicles leased by consumers may qualify for commercial EV tax credits. This makes EVs assembled outside of North America eligible, including the Hyundai Ioniq 5 and Kia EV6. Foreign automakers and US allies in Europe and Asia had strongly opposed the North American assembly requirement. But the leasing rules also appear to allow any EV to qualify at any price, 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 happy with the overall picture.
TSLA stock edged higher.
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Stocks near points of purchase
Medpace shares rose 3.4% to 215.62, breaking a downtrend line as it rebounded from its 21-day and 50-day lines. MEDP stock has consolidated well, creating a deep 16% consolidation near the top of a long, deep base. The official buy point is 235, but Thursday offered an early entry.
Shares of KLAC rose 3.3% to 379.86, breaking away from its 10-week line. A move above the 21-day line may provide a chance to buy shares of KLAC 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 can be an early entry on a not quite short basis. This in turn could be seen as a vehicle for a deep 17-month consolidation for Starbucks stock.
URI stock advanced 1.2% to 356.21, recovering from the 21-day line. United Rentals is near the 368.04 buy point in a 13-month consolidation that was briefly completed earlier this month. URI shares have traded very closely on its handle. The relative strength line is at a new high, reflecting the strong performance of United Rentals stock against the S&P 500 index.
Shares of MBLY rose 2.8% to 34.51, recovering from an intraday dip below its 21-day moving average. Mobileye’s IPO went public at the end of October with 21 shares. MBLY shares have shown strength in a weak market, but like many new IPOs there have been big moves. Stocks are starting to calm down. An aggressive investor may look for a break of the trendline for an entry, but ideally Mobileye stock will make a new base.
Shares of FLR rose 0.8% to 34.95, continuing to trade strongly, working on a possible flat base, which would be a base-on-base pattern. Fluorine earnings are seen to rise 80% in 2023 as infrastructure stocks show strength in public and private projects.
Shares of SMCI rose 1.6% to 81.91, recovering from 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 provide an early entry. One of the strongest rising stocks of 2022, Super Micro Computer stock has been consolidating for several weeks after a Nov. 2 earnings gap breakout, with the advance continuing to 95.22 on Nov. 25. Shares of SMCI may make a new low at the end of next week.
Market Analysis
The stock market made a strong comeback after Wednesday’s selloff. After falling from the intraday high of December 13, the major indexes were certainly “due” for a bounce.
The question is whether they will continue in the coming days and weeks.
The market went into correction on Wednesday as the Dow Jones lowered its 50-day moving average and the Nasdaq closed at a two-year low.
So Thursday was just the first day of a new bull market effort. It will take a lot more than that 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, with further resistance at its 200-day line and December highs.
While shares of Tesla, Apple and many bare-bones chip and software names led Thursday’s rally, some major stocks flashed buy signals or moved into positions, such as MEDP shares.
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What should you do now?
It’s tempting to get back into the market when the indices have risen sharply and there’s a sea of green between the leading and visible stocks.
But since the end of the bear market on Oct. 13, breakout and buy signals have largely declined.
Some sectors, including industrials, metals and medicals, have held up better in recent weeks, so it’s easier to justify a long exposure to these areas, either with specific stocks or sector ETFs. But keep every little exposure and rush to take profits and cut losses.
Conclusion: This is a market correction. Don’t follow bull market rules, especially 2020 crazy bull rules.
Invest like you’re driving on an icy, windy road, not an open highway. Proceed with caution or wait on the side of the road.
It’s more of a time to plan your trip versus going out. Work on watch lists. A number of stocks from a variety of sectors are showing strength.
Read the Big Picture daily to stay in sync with market direction and key stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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