Dow Jones futures fell Friday morning, along with S&P 500 futures and Nasdaq futures, heading into the final trading day of 2022. The major indexes rose strongly Thursday on jobs data, Apple iPhone news and Tesla continuing to bounce.
But the market is in a correction after breaking key levels Wednesday. Thursday marked just day one of a new stock market rally attempt. Investors should be very cautious about taking new positions.
Medpace flashed a buy signal Thursday, while KLA Corp., Starbucks, United Rentals, Mobileye, Super Micro Computer and Fluor are setting up. But these stocks will likely rise or fall with the market.
MEDP stock, Fluor and United Rentals are on IBD Leaderboard. KLAC stock is on IBD Long-Term Leaders. MBLY stock is on the IBD 50. KLA Corp. and URI stock are on the IBD Big Cap 20.
Meanwhile, new Treasury Department guidelines stated that many Model Y vehicles will not qualify for U.S. tax credits starting Jan. 1 without sharp price cuts. But there's a loophole that may allow all Tesla vehicles — and any EVs — to qualify for hefty tax credits at any price.
Dow Jones Futures Today
Dow Jones futures declined 0.4% vs. fair value. S&P 500 futures fell 0.6%. Nasdaq 100 futures slumped 1%. Futures are weakening into the market open.
The 10-year Treasury yield rose 3 basis points to 3.86%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Market Rally Attempt
The stock market had a strong rebound, running up during the morning and then holding those gains in the afternoon.
The Dow Jones Industrial Average rose just over 1% in Thursday's stock market trading. The S&P 500 index popped 1.75%. The Nasdaq composite and small-cap Russell 2000 jumped 2.6%.
Initial jobless claims rose slightly more than expected in the week ended Dec. 24, but remain low at 225,000. Continuing claims climbed 41,000 to 1.71 million in the latest week, the highest since early February.
AAPL stock popped 2.8% to 129.61 after skidding 3.1% Wednesday to a bear-market low. Apple iPhone production is rebounding, according to The Wall Street Journal, following yet another report of recent iPhone output woes.
U.S. crude oil prices dipped 0.7% to $78.40 a barrel.
The 10-year Treasury yield fell 5 basis points to 3.83%.
ETFs
Among the best ETFs, Innovator IBD 50 ETF rose 1.1%, while Innovator IBD Breakout Opportunities ETF climbed 0.9%. IShares Expanded Tech-Software Sector ETF bounced 3%. VanEck Vectors Semiconductor ETF popped 3.3%. Reflecting more-speculative story stocks, ARK Innovation ETF leapt 5.2% and ARK Genomics ETF 4.1%. Tesla stock is a major holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF advanced 1.9%. U.S. Global Jets ETF ascended 2.65%. SPDR S&P Homebuilders ETF climbed 2.4%. The Energy Select SPDR ETF was up just over 1% and the Financial Select SPDR ETF climbed 1.4%. The Health Care Select Sector SPDR Fund rose 1.1%.
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Tesla Stock
Tesla stock jumped 8.1% to 121.82 following Wednesday's 3.3% bounce. TSLA stock is still down slightly for the week and 37% in December. After such a huge sell-off, Tesla stock was due for a bounce, but remains far below key levels.
Tesla stock is on track for its worst annual loss ever.
Tesla Model Y Tax Credits
The Tesla bull case for 2023 relies heavily on new U.S. 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 listed vehicles that qualify for the U.S. EV credits. Most versions of the Model Y will have a $55,000 price cap to receive EV credits, vs. the $80,000 cap for SUVs, pickup trucks and vans.
But seven-seat Model Y vehicles, which have not been big sellers, will be eligible up to $80,000.
The current base Model Y in the U.S. starts at $65,990, Tesla would need to slash the price, perhaps by reintroducing a lower-range Model Y SR+, to get tax credits — unless it's a seven-seat variant.
But, there's yet another twist! The Treasury also said 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, had strongly objected to the North America assembly requirement. But the leasing rules also appear to let any EV qualify at any price, without income limits either.
It'll be interesting to see what Tesla and other automakers do with regard to variants and pricing to maximize the benefit from the new tax credits.
Guggenheim lowered Tesla estimates for 2023, in part on the tax credit guidelines.
"In short, the disclosure is negative for TSLA with most Model Y's being subject to a $55K price cap. As a result, only the 7-seat version of the Model Y will be eligible for the $80K price cap, and while this will make that vehicle more attractive, we believe it represents a low percentage of overall US sales," the firm's analysts explained. "We previously estimated that 60-70% of TSLA US units would qualify for EV sales credits based on current prices, but with revised guidance that number is likely to be closer to 10-20% barring a price cut on the Model 3 LR."
TSLA stock fell slightly Friday morning.
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Stocks Near 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 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, bouncing from its 10-week line. A move above the 21-day line might offer a chance to buy KLAC stock as a Long-Term Leader.
SBUX stock rose 1.2% to 99.77, rebounding from its 10-week and crossing above its 21-day. That could be an early entry into a short not-quite-base. That in turn could be seen as a handle to a 17-month deep consolidation for Starbucks stock.
URI stock advanced 1.2% to 356.21, rebounding from the 21-day line. United Rentals is close to a 368.04 handle buy point on a 13-month consolidation, briefly topped earlier this month. URI stock has traded very tightly in its handle. The relative strength line is at a new high, reflecting United Rentals stock's outperformance vs. the S&P 500 index.
MBLY stock rose 2.8% to 34.51, rebounding from an intraday undercut of its 21-day moving average. The Mobileye IPO came public in late October at 21 a share. MBLY stock has shown strength in a weak market, but like many new IPOs has had big whipsaw moves. Shares are starting to calm down. An aggressive investor could look for a trendline break for an 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 base, which would be a base-on-base pattern. Fluor earnings are seen surging 80% in 2023, as infrastructure stocks show strength in public and private projects.
SMCI stock climbed 1.6% to 81.91, rebounding 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 offer an early entry. One of the strongest growth stocks of 2022, Super Micro Computer stock has been consolidating for several weeks after a Nov. 2 earnings gap-up breakout, with the advance continuing to 95.22 on Nov. 25. SMCI stock could have a new base at the end of next week.
Market Analysis
The stock market had a solid rebound after Wednesday's sell-off. After tumbling since the Dec. 13 intraday high, the major indexes certainly were "due" for a bounce.
The question is whether they will follow up in the coming days and weeks.
The market moved into correction on Wednesday as the Dow Jones undercut its 50-day moving average and the Nasdaq set a two-year closing low.
So Thursday was just day one of a new market rally attempt. It's going to take 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 peaks.
While Tesla stock, Apple and many beaten-down chip and software names led Thursday's bounce, some leading stocks flashed buy signals or moved into position, such as MEDP stock.
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What To Do Now
It's tempting to move back into the market when the indexes are up sharply and there's a sea of green among leading and notable stocks.
But ever since the bear market bottom on Oct. 13, breakouts and buy signals have largely fizzled.
Some sectors, including industrial, metal and medicals, had held up better in recent weeks, so it's easier to justify nibbling in this areas, either 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 under bull market rules, especially 2020-esque mad bull rules.
Invest like you're driving on an icy, windy road, not an open highway. Proceed carefully, or wait it out on the side of the road.
It's more of a time to plan your journey vs. venturing out. Work on watchlists. A number of stocks from a variety of sectors are showing strength.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
