Dow Jones futures edged lower after hours, along with S&P 500 futures and Nasdaq futures, reaching the final trading day of 2022. Major indexes rose sharply on Thursday on jobs, Apple ( AAPL ) iPhone news and news. Tesla ( TSLA ) continues to bounce.
X:
But the market is in correction after breaking the key levels on Wednesday. Thursday marked the first day of the stock market’s new bull run. Investors should be very careful about taking new positions.
Medpace: (MEDP) A buy signal was issued on Thursday, while KLA Corp. (KLAC), Starbucks (SBUX), United Rentals: (URI), Mobileye: (MBLY), Super micro computer (SMCI) and: Fluoride (FLR) are installed. But these stocks are likely to rise or fall with the market.
MEDP stocks, Fluor and United Rentals are on the IBD Leaderboard. KLAC shares are among the IBD Long-Term Leaders. MBLY stock is in the IBD 50. Shares of KLA Corp. and URI are in the IBD Big Cap 20.
Meanwhile, new Treasury Department guidelines say many Model Y vehicles won’t qualify for the U.S. tax break starting Jan. 1 without a steep price cut. But there is a loophole that could allow all Tesla cars, and any EV, to receive significant tax credits at any price.
Dow Jones futures today
Dow Jones futures were down 0.1% in real terms. S&P 500 futures fell 0.2%. Nasdaq 100 futures fell 0.1%.
Keep in mind 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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Market rally experience
The stock market had a strong recovery, rallying during the morning and then holding on to those gains in the afternoon.
The Dow Jones Industrial Average rose a little more than 1% in the stock market Thursday. The S&P 500 index rose by 1.75%. The Nasdaq composite and small-cap Russell 2000 rose 2.6%.
Initial jobless claims for the week ended Dec. 24 rose slightly more than expected but remained low at 225,000. Continuing claims rose by 41,000 in the past week to 1.71 million, the highest since early February.
AAPL shares rose 2.8% to 129.61 after sliding 3.1% to a bear market low on Wednesday. Apple’s iPhone production is on the mend, according to The Wall Street Journal, following another report on recent iPhone production problems.
Crude oil prices in the USA decreased by 0.7%, reaching 78.40 dollars per barrel.
The 10-year Treasury yield decreased by 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 ) climbed 0.9%. The ISShares Expanded Tech-Software Sector ETF ( IGV ) rose 3%. VanEck Vectors Semiconductor ETF ( SMH ) rose 3.3%. Reflecting the more speculative historical stocks, the ARK Innovation ETF ( ARKK ) rose 5.2% and the ARK Genomics ETF ( ARKG ) gained 4.1%. Tesla stock is a large holding in 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 ) rose just over 1%, and the Financial Select SPDR ETF ( XLF ) rose 1.4%. The Health Care Select Sector SPDR Fund ( XLV ) rose 1.1%.
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Tesla Stock:
Tesla shares rose 8.1% to 121.82 after a 3.3% gain on Wednesday. TSLA shares are still down slightly on the week, down 37% in December. After such a huge selloff, Tesla stock should bounce back, but remains well below key levels.
Tesla Model Y Tax Credits
Tesla’s bull case for 2023 rests heavily on new U.S. tax credits of up to $7,500 under the Inflation Reduction Act, which boost higher domestic sales margins to offset weaker demand and prices in China and possibly Europe.
On Thursday, the Treasury Department listed the vehicles that qualify for US EV credits. Most Model Y variants will have a price threshold of $55,000 to qualify for EV credits, versus the $80,000 limit for SUVs, pickup trucks and vans.
But the seven-seat Model Y cars, 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 U.S., Tesla will have to drop the price, possibly re-introducing a lower-range Model Y SR+ to get the tax breaks, unless it’s a seven-seat variant.
But, there’s another twist. Treasury also said EVs leased by consumers may qualify for commercial EV tax credits. That allows EVs assembled outside of North America, including the Hyundai Ioniq 5 and Kia EV6. Foreign automakers and US allies in Europe and Asia strongly opposed the North American assembly requirement. But leasing rules also 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 options and pricing to maximize the benefit of the new tax breaks.
But investors seemed happy with the overall picture.
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Stock near points of purchase
Shares of Medpace rose 3.4% to 215.62, breaking a downtrend as it retreated from its 21-day and 50-day lines. MEDP stock rallied nicely, forming a deep 16% rally alongside 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, jumping above its 10-week line. A move above the 21-day line could provide an opportunity to buy KLAC stock as a long-term leader.
Shares of SBUX rose 1.2% to 99.77, rebounding from a 10-week low and breaking above a 21-day low. It could be an early entry into a short not-so-basic. That, in turn, can be seen as a handle on a deep 17-month rally in Starbucks stock.
Shares of URI advanced 1.2% to 356.21, retreating from a 21-day line. United Rentals is near a 13-month consolidation buy point at the 368.04 handle, which it briefly surpassed earlier this month. URI stock traded very strongly on its handle. The relative strength line is at a new high, reflecting the outperformance of United Rentals stock relative to the S&P 500 index.
Shares of MBLY rose 2.8% to 34.51, rebounding from an intraday drop below its 21-day moving average. The Mobileye IPO went public in late October at 21 a share. MBLY’s stock has shown strength in a weak market, but like many new IPOs, has had a lot of swings. Stocks are starting to calm down. An aggressive investor may look for a trend for an entry, but ideally Mobileye stock will make a new base.
Shares of FLR rose 0.8% to 34.95 in continued firm trade, working on a possible flat base that will be on a base basis. Fluoride revenues grow 80% in 2023 as infrastructure stocks show strong public and private projects.
SMCI shares rose 1.6% to 81.91, retreating from 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 be an early entry. One of the strongest bullish stocks of 2022, Super Micro Computer shares have been consolidating for several weeks since the Nov. 2 profit breakout, with the advance continuing to 95.22 on Nov. 25. SMCI stock may have a new base. end of next week.
Market analysis
After Wednesday’s selloff, the stock market had a steady recovery. After the decline from the December 13 intraday high, the major indices were certainly “must” bounce.
The question is whether they will follow through in the coming days and weeks.
The market headed for a correction on Wednesday as the Dow Jones undercut its 50-day moving average and the Nasdaq hit a two-year closing low.
So Thursday was the start of a new market rally experience. It will take a lot more than that to feel more confident.
The Dow Jones has bounced back from its 50-day line, but is still below the 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 a host of chip and software names led Thursday, some top stocks flashed buy signals or moved into positions like MEDP stock.
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What to do now?
It’s tempting to get back into the market when indices are surging and there’s a sea of green among 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 medicals, have held up better in recent weeks, so it’s easier to justify taking bites out of these sectors, 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 act by bull market rules, especially the 2020 Mad Bull Rules.
Invest like you’re driving on an icy, windy road, not the open highway. Proceed carefully, or wait for it on the side of the road.
It’s more time to plan your trip versus going out. Work on watch lists. A number of stocks are showing strength from different sectors.
Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter @IBD_ECarson for stock market updates and more.
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