S&P 500 index recovers key level, but remains cautious; Tesla doubles the discount in the US

Dow Jones futures were up slightly after hours, along with S&P 500 and Nasdaq futures. Micron technology (MU) and Tesla (TSLA) were in the spotlight overnight.




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The stock market rally had a solid lead Tuesday, with Nike (NKE) on the rise and Fedex (FDX) leading the way in earnings while also backing some peers and related stocks.

The S&P 500 index climbed just above the 50-day line, which is a positive but not decisive sign.

Apple (AAPL) managed to climb modestly, extending a bounce just above Tuesday’s bear market lows. Tesla (TSLA) failed to make a gain, closing slightly lower. Tesla has reportedly doubled its year-end delivery discount in the US

Investors should remain cautious. The market rally remains under pressure and has had a nasty habit of pulling back after showing strength.

Meanwhile, Prime Solar (FSLR), medpace (MEDP), Aehr test systems (AEHR), Impinj (PI) and Schlumberger (SLB) are leading stocks still close to their 50-day or 10-week moving averages.

MEDP stock was added to the IBD leaderboard on Wednesday, with PI stock on the leaderboard watchlist. SLB and KLA Corp. shares are on the IBD Big Cap 20.

Gain in microns

Micron reported a larger-than-expected loss as first-quarter revenue tumbled 47%. The memory chip giant has led slightly lower for the current Q2.

Micron has said it will continue to cut capital spending. That’s not good news for equipment makers with memory-exposed chips Applied materials (AMAT), Search Lam (LRCX) and KLA extension (KLAC)

MU shares fell 2% in extended trade. The shares were up 1% to 51.19 in the regular session on Wednesday.

Meanwhile, AMAT and Lam Research shares fell 2% overnight, while KLAC shares fell less than 1%.

Hard drive manufacturers western digital (WDC), Seagate technology (STX) fell by 2.2% and 1.5% respectively.

Dow Jones Futures today

Dow Jones futures are up 0.15% from fair value. S&P 500 futures advanced 0.3% and Nasdaq 100 futures rose 0.3%.

The 10-year Treasury yield fell 2 basis points to 3.66%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session of the stock market.


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Stock market rebound

The stock market rally rebounded on Wednesday, quickly climbing well over 1% and largely holding onto those gains into the close.

The Dow Jones Industrial Average was up 1.6% in the stock market on Wednesday. The S&P 500 index rallied 1.5% with Dow Jones giant Nike being the day’s best S&P 500 performer. The Nasdaq Composite also advanced 1.5%. The small-cap Russell 2000 rebounded 1.7%.

Apple stock rose 2.4% to 135.45 Wednesday, still well below its moving averages. AAPL stock hit 129.89 on Tuesday, just above June’s bear market low of 129.04.

U.S. crude prices rose 2.7% to $78.29 a barrel.

The 10-year Treasury yield remained unchanged at 3.68%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) was up 2.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 1.6%. The iShares Expanded Tech-Software Sector (IGV) ETF was up 1.2%. The VanEck Vector Semiconductor (SMH) ETF was up 2.2%. Micron stock is a notable holding of SMH, along with chip equipment stocks AMAT, LRCX, and KLAC.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) was up 1.7% and ARK Genomics ETF (ARKG) was up 2.2%. Tesla shares are a major holding in Ark Invest ETFs.

SPDR S&P Metals & Mining ETF (XME) was up 2.6% and Global X US Infrastructure Development ETF (PAVE) was up 1.7%. The US Global Jets ETF (JETS) was up 1.3%. SPDR S&P Homebuilders ETF (XHB) was up 1.9%. The Energy Select SPDR ETF (XLE) and Financial Select SPDR ETF (XLF) advanced 1.55%. The Health Care Select Sector SPDR Fund (XLV) gained 1.3%.


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Tesla delivery discount

Tesla has begun offering $7,500 for U.S. delivery of a Model 3 or Model Y before the end of the year, Electrek reported on Wednesday. That’s up from $3,750 in early December, with 10,000 free Supercharger miles as well. Tesla is looking to boost its fourth-quarter delivery figures.

Many prospective buyers may delay delivery until January 1, when new U.S. tax credits of up to $7,500 take effect. Tesla’s US sales could also be negatively impacted by Elon Musk’s Twitter actions and politically charged tweets.

Tesla stock attempted to rally on Wednesday but was unable to end its losing streak on a strong market day. TSLA stock fell 0.2% Wednesday to 137.57, hitting another bearish low. Shares are down 8.4% so far this week and 29% in December.

Actions to watch

First Solar stock was up 3.5% to 162.06 after falling to 150.25 intraday, finding support just above the 50-day line. FSLR shares are now 5.7% above the 10-week line and right at short-term highs. The solar power leader could be working on a new base, but it needs a few more weeks.

MEDP stock rose 3.4% to 210.59, rebounding from the 50-day line and regaining its 21-day line. Investors could buy Medpace stock now or wait for a trendline break starting Nov. 15. MEDP stock has a 235.82 buy point from a 16% deep consolidation next to a 45% deep cup base.

PI stock rose 2.3% to 117.15, continuing to rebound from the 10-week line but only 4% above that level. That RFID chip game is actionable since that pullback following a late-October earnings breakout.

The AEHR rose 1.3% to 22.80, rebounding from its 50-day line. A move above the 21 day line would offer a volatile entry into the stock. Chip testing firm exposed to EVs is experiencing booming revenue growth.

SLB stock rose 3% to 53.31, continuing Tuesday’s rebound from the 50-day and 21-day lines. Now clearly breaking a trendline in a short consolidation, Schlumberger stock is still usable here.

Analysis of market rallies

OK, now the stock market rally has rebounded. After packing up gains on Tuesday, the major indexes had a strong session on Wednesday.

The Nike-backed Dow Jones continued to rebound from its 50-day line.

The S&P 500 and the S&P MidCap 400 have just recovered their 50-day moving averages, but only slightly. The S&P 500 needs to move decisively above the 50 day line, and that would be just a first step for the market to rally.

The Nasdaq and Russell 2000 remain below their 50-day averages.

Other leading stocks found support or rebounded from key levels, including First Solar and Aehr Test Systems. Some are flashing buy signals, but in a shaky market.


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what to do now

After last week’s bad bearish reversal week and losses on Monday, the last couple of days have been good, but don’t get excited.

Market exposure should still be modest. The uptrend remains under pressure with the S&P 500 right at a key level, with many more hurdles ahead.

Even if the market rally recovers much of the previous week’s losses, there is still a risk that this is another trap to attract investors just before a pullback.

So while some stocks have shown buying signals, investors should be cautious about taking new positions. Yes, if the major indexes continue to bounce, new buying over the past couple of days will likely work. But if the S&P 500 drops to Tuesday’s lows or worse, these new buys will likely fail.

If you try to play the current market, keep your positions small and take at least partial profits quickly. Broad-market ETFs could be a way to dabble in a mini-rally without the individual equity risk.

But many shares are forming. So investors should be ready to act, updating watchlists and staying engaged.

Read The Big Picture daily to stay abreast of market direction and major stocks and sectors.

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

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