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Dow Jones falls towards final trading day of 2022; Tesla EV credit guidelines add confusion

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Dow Jones futures fell Friday morning along with S&P 500 and Nasdaq futures heading into the final trading day of 2022. Apple iPhone (AAPL) and tesla (TSLA) continuing to bounce.




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But the market is in for a correction after breaking key levels on Wednesday. Thursday marked just the first day of another stock market recovery attempt. Investors should be very cautious when taking on new positions.

Medspace (MEDP) issued a buy signal Thursday, while KLA Corp. (KLAC), starbucks (SBUX), United Rentals (URI), mobileye (MBLY), super microcomputer (SMCI) and Fluorine (FLR) are being configured. But these stocks will likely rise or fall with the market.

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

Meanwhile, new Treasury Department guidelines state that many Model Y vehicles will not qualify for US tax credits starting Jan. 1 without steep price cuts. But there is a loophole that could allow all Tesla vehicles – and any EVs – to qualify for hefty tax credits at any price.

Dow Jones Futures Today

Dow Jones futures were down 0.4% vs. fair value. S&P 500 futures fell 0.6%. Nasdaq 100 futures were down 1%. Futures are weakening in the open market.

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

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


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Market recovery attempt

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

The Dow Jones Industrial Average was up just over 1% in stock market trading on Thursday. The S&P 500 index rose 1.75%. The Nasdaq composite and the small-cap Russell 2000 jumped 2.6%.

Initial jobless claims increased slightly more than expected in the week ended Dec. 24, but remain low at 225,000. Continuing claims rose from 41,000 to 1.71 million in the last week, the highest since early February.

AAPL shares rose 2.8% to 129.61 after falling 3.1% on Wednesday to a bear market low. Apple’s iPhone production is on the mend, according to The Wall Street Journal, following yet another report of recent iPhone production issues.

US 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) was up 1.1%, while the Innovator IBD Breakout Opportunities (BOUT) ETF was up 0.9%. The IShares Expanded Tech-Software Sector ETF (IGV) jumped 3%. The VanEck Vectors Semiconductor ETF (SMH) was up 3.3%. Reflecting stocks from more speculative stories, the ARK Innovation ETF (ARKK) jumped 5.2% and the ARK Genomics ETF (ARKG) 4.1%. Tesla shares are a major holding in Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF (XME) advanced 1.9%. The US Global Jets ETF (JETS) rose 2.65%. 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 Health Care Select Sector SPDR Fund (XLV) was up 1.1%.


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Tesla stock

Tesla shares jumped 8.1% to 121.82 after Wednesday’s 3.3% jump. TSLA shares are still down slightly for the week and 37% in December. After such a huge sell-off, Tesla shares were supposed to see a bounce, but they remain far below key levels.

Tesla stock is on course for its worst annual loss ever.

Tesla Model Y tax credits

Tesla’s bullish case for 2023 relies heavily 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 Model Y versions will have a price cap of $55,000 to receive EV credits, versus the $80,000 cap for SUVs, pickups and vans.

But the seven-seat Model Y vehicles, which haven’t sold much, will be entitled to as much as $80,000.

The current base Model Y in the US starts at $65,990, Tesla would need to bring the price down, perhaps by reintroducing a lower-range Model Y SR+, to get tax credits – unless it’s a seven-seat variant.

But, there is yet another twist! Treasury also said that EVs 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 have strongly opposed the North American assembly requirement. But leasing rules also seem to allow any EV to qualify at any price, also with no revenue caps.

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’s estimates for 2023, in part due to tax credit guidelines.

“In summary, the disclosure is negative for TSLA with most Model Ys being subject to a price cap of $55,000. As a result, only the 7-seat version of the Model Y will be eligible for the $80,000 price cap and , will make this vehicle more attractive, we believe it represents a low percentage of total sales in the United States”, explained the company’s analysts. “We previously estimated that 60-70% of TSLA units in the US would qualify for EV sales credits based on current prices, but with revised guidance, that number will likely be closer to 10-20% barring a price cut. on the Model 3 LR. “

TSLA shares were down slightly on Friday morning.


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


Actions near the points of purchase

Medpace shares rose 3.4% to 215.62, breaking a bear trend line as it rebounded from its 21- and 50-day line. MEDP stocks consolidated well, forging a 16% deep trading range near the top of a long, deep base. The official buy point is 235, but Thursday offered an early entry.

KLAC shares rose 3.3% to 379.86, bouncing off its 10-week line. A move above the 21-day line could offer a chance to buy KLAC as the long-term leader.

Shares in SBUX rose 1.2% to 99.77, rebounding from its 10-week and crossing above its 21-day. This can be an early entry on a not exactly short basis. This, in turn, could be seen as triggering a 17-month deep consolidation for Starbucks shares.

URI shares advanced 1.2% to 356.21, rebounding from the 21-day line. United Rentals is close to a 368.04 buy point in a 13-month consolidation, briefly surpassed earlier this month. URI’s shares traded very strongly in their control. The relative strength line is at a new high, reflecting the outperformance of United Rentals stock relative to the S&P 500 index.

MBLY shares rose 2.8% to 34.51, rebounding from an intraday dip from its 21-day moving average. Mobileye’s IPO went public in late October at 21 per share. MBLY’s shares showed strength in a weak market, but like many new IPOs, they had big swings. Stocks are starting to calm down. An aggressive investor might look for a trendline break for an entry, but ideally Mobileye stock will forge a new base.

FLR shares rose 0.8% to 34.95, continuing to trade steadily, working on a possible flat basis, which would be a base-on-base pattern. Fluor’s earnings are expected to rise 80% in 2023 as infrastructure stocks show strength in both public and private projects.

SMCI shares rose 1.6% to 81.91, rebounding from the 50-day line but finding resistance on the 21st. may offer early entry. One of the strongest growth stocks of 2022, Super Micro Computer shares have been consolidating for several weeks after breaking gains on Nov. 2, with the advance continuing to 95.22 on Nov. 25. end of next week.

Market analysis

The stock market had a solid recovery after Wednesday’s sell-off. After falling from the intraday high of Dec. 13, the major indices were certainly “due” for a recovery.

The question is whether they will follow up in the coming days and weeks.

The market entered a correction on Wednesday as the Dow Jones cut its 50-day moving average and the Nasdaq set to a two-year closing low.

So, Thursday was just the first day of another attempt at a market recovery. It will take much longer 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-days, with more resistance at its 200-day line and December peaks.

While shares in Tesla, Apple and many losing chip and software names led Thursday’s jump, some major stocks gave buy signals or moved in, such as MEDP shares.


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What to do now

It’s tempting to get back into the market when the indexes are soaring and there’s a sea of ​​green among the major notable stocks.

But since the bottom of the bear market on Oct. 13, breakouts and buy signals have largely failed.

Some sectors, including industrials, metals and medical, have held up better in recent weeks, so it’s easier to justify a nibble in those areas, whether with specific stocks or sector ETFs. But keep any exposures small and be quick to take profits and cut losses.

Bottom line: This is a market correction. Don’t trade under the bull market rules, especially the 2020 mad bull rules.

Invest as if you were driving on an icy, windy road, not an open highway. Proceed with caution or wait on the side of the road.

It’s more a time to plan your journey than to venture out. Work on watch lists. Several stocks across multiple sectors are showing strength.

Read The Big Picture every day to stay in sync with market direction and key stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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