Dow Jones Fall Heading into Last Trading Day of 2022; Tesla EV credit guidelines add to confusion

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 sharply Thursday on jobs data, Apple ( AAPL ) iPhone news and Tesla ( TSLA ) continues to bounce.


But the market is in a correction after breaking key levels on Wednesday. Thursday marked only day one of another attempt at a stock market rally. Investors should be very careful about taking new positions.

Medpace (MEDP) flashed a buy signal on Thursday, while KLA Corp. (KLAC), Starbucks (UNDER), United Rentals (URI), Mobileye (MBLY), Super micro computer (SMCI) and Fluorine (FLR) sets up. But these stocks are likely to rise or fall with the market.

MEDP shares, Fluor and United Rentals are on the IBD Leaderboard. KLAC stock is on the IBD Long-Term Leaders. MBLY stock is at the IBD 50. KLA Corp. and URI stock is on the IBD Big Cap 20.

Meanwhile, new Treasury Department guidelines said many Model Y vehicles won’t qualify for U.S. tax credits starting Jan. 1 without steep price cuts. But there’s a loophole that could allow all Tesla vehicles — and all electric cars — to qualify for big tax credits at any price.

Dow Jones Futures today

Dow Jones futures fell 0.4% relative to fair value. S&P 500 futures fell 0.6 percent. Nasdaq 100 futures fell 1 percent. Futures weaken into the open market.

The 10-year government yield rose 3 basis points to 3.86%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Market rally attempt

The stock market had a strong rally, rising during the morning and then holding its gains in the afternoon.

The Dow Jones Industrial Average rose just over 1% in Thursday’s trading. The S&P 500 index rose 1.75 percent. The Nasdaq composite and small-cap Russell 2000 jumped 2.6%.

The initial number of unemployed rose slightly more than expected in the week ending December 24, but is still low at 225,000. Continuing claims rose 41,000 to 1.71 million in the past week, the highest since early February.

AAPL shares fell 2.8% to 129.61 after falling 3.1% on Wednesday to a bear market low. Apple iPhone production is picking up again, according to The Wall Street Journal, following yet another report of recent iPhone production problems.

The US crude oil price fell 0.7 percent to $78.40 a barrel.

The 10-year government yield fell 5 basis points to 3.83%.


Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.1%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) gained 0.9%. The iShares Expanded Tech-Software Sector ETF ( IGV ) jumped 3%. The VanEck Vectors Semiconductor ETF ( SMH ) rose 3.3%. ARK Innovation ETF ( ARKK ) reflects more speculative stock stocks, up 5.2% and ARK Genomics ETF ( ARKG ) 4.1%. Tesla stock is a large holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF (XME) rose 1.9%. The 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) rose 1.4%. The Health Care Select Sector SPDR Fund ( XLV ) rose 1.1%.

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Tesla shares

Tesla shares jumped 8.1% to 121.82 after Wednesday’s 3.3% pullback. TSLA stock is still down a bit for the week and 37% in December. After such a big sell-off, Tesla stock was set to bounce back, but is still well below key levels.

Tesla shares are on track for their worst annual loss ever.

Tesla Model Y tax credit

The Tesla bull case for 2023 is heavily dependent 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 listed vehicles that qualify for US EV credits. Most versions of the Model Y will have a price cap of $55,000 to receive EV credits, versus an $80,000 cap for SUVs, pickups and vans.

But seven-seat Model Y vehicles, which have not been big sellers, will be eligible up to $80,000.

With the current base Model Y in the US starting at $65,990, Tesla will have to cut the price, perhaps by reintroducing a lower-range Model Y SR+, to get the tax credit – unless it’s a seven-seat variant.

But there’s another twist! Treasury also said that electric cars leased by consumers can qualify for commercial tax credits for electric cars. That makes electric cars assembled outside North America eligible, including the Hyundai Ioniq 5 and Kia EV6. Foreign car manufacturers, and American allies in Europe and Asia, had strongly objected to the requirement for assembly in North America. But the leasing rules also seem to allow any electric car to qualify for any price, rather without income limits.

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.

Guggenheim lowered Tesla estimates for 2023, based in part on the tax credit guidelines.

“In short, the revelation is negative for TSLA, with most Model Ys subject to a $55,000 price cap. As a result, only the 7-seat version of the Model Y will be eligible for the $80,000 price cap, and while this will make that vehicle more attractive, we believe it represents a low percentage of total 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 pricing, 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 on Friday morning.

Tesla vs. BYD: Which EV giant is the best buy?

Shares close to buy points

Medpace shares rose 3.4% to 215.62, breaking a downtrend line as it bounced back from the 21-day and 50-day lines. 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 off its 10-week line. A move above the 21-day line could provide a chance to buy KLAC stock as a long-term leader.

SBUX stock rose 1.2% to 99.77, rebounding from its 10-week high and crossing above its 21-day high. It can be an early entry into a short not quite base. That again can be seen as a handle for a 17-month deep consolidation for Starbucks stock.

URI stock rose 1.2% to 356.21, retreating from its 21-day line. United Rentals is near a 368.04 buy point on a 13-month consolidation, briefly topped earlier this month. URI stock has been trading very close to the handle. The relative strength limit is at a new high, reflecting United Rentals stock’s outperformance compared to the S&P 500 index.

MBLY shares rose 2.8% to 34.51, rebounding from an intraday undershoot of its 21-day moving average. The Mobileye IPO was announced at the end of October at 21 per share. The MBLY share has shown strength in a weak market, but like many new IPOs has had large whipsaw movements. The shares are starting to calm down. An aggressive investor might look for a trendline break for an entry, but ideally, Mobileye stock will build a new base.

FLR shares were up 0.8% at 34.95, continuing to trade tight, working on a possible flat base, which would be a base-on-base pattern. Fluor revenues rise 80% in 2023 as infrastructure stocks show strength in public and private projects.

SMCI shares climbed 1.6% to 81.91, rebounding from the 50-day line but finding resistance at the 21-day. A strong move over 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 an earnings gap breakout on November 2nd, with the advance continuing to 95.22 on November 25th. The SMCI stock could make a new base at the end of next week.

Market analysis

The share market had a solid upswing after Wednesday’s sale. Having fallen since the December 13 intraday high, the major indexes were certainly “due” for a bounce.

The question is whether they will follow through in the days and weeks to come.

The market moved into 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 day one of another market rally attempt. 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 remains below its 50-day, with further resistance at its 200-day line and December highs.

While Tesla shares, Apple and many depressed chip and software names led Thursday’s return, some leading stocks flashed buy signals or moved into position, such as MEDP shares.

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What to do now

It is tempting to return to the market when the indices are strongly up and there is a sea of ​​green among leading and notable stocks.

But ever since the bottom of the bear market on October 13, breakouts and buy signals have mostly failed.

Some sectors, including industrials, metals and medicals, had held up better in recent weeks, so nibbling in these areas, either with specific stocks or sector ETFs, is easier to justify. 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-style mad bull rules.

Invest like you’re driving on an icy, windy road, not an open highway. Proceed carefully, or wait for it on the side of the road.

There’s more time to plan your trip versus venturing out. Work with watch lists. A number of shares from a number of 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 exchange updates and more.


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