The stock market wavered Monday, taking a needed pause following the biggest two-day rally since 2008.
The Nasdaq composite was down as much as 1.4% early in the day, but then bounced back. After spending part of the day in the black, the main indexes faded in late trading. The Nasdaq closed with a 1.1% loss. The S&P 500 fell 0.9% and the Dow Jones Industrial Average lost 0.6%.
The Innovator IBD 50 ETF fell a more moderate 0.3%.
The market's morning bounce appeared to coincide with a report quoting Fed Vice Chair Lael Brainard. She indicated the Fed is likely to increase rates by a half-percentage point at its December meeting. That increase — milder than previous hikes of 75 basis points — would confirm market expectations.
But selling picked up in the last hour of the session and indexes closed at the day's lows. It was bearish action, although not a surprise.
Thursday and Friday combined for the Nasdaq's best two-day advance in 14 years, according to Dow Jones Market Data. Last week was the index's best since March of this year.
Those types of explosive gains cannot last long, so Monday's decline serves to moderate the stock market advance. Volume fell on the NYSE and Nasdaq, which suggested that institutional investors did not sell aggressively.
The Nasdaq has the smallest margin above the 50-day moving average compared with other main indexes. And it held above that level on Monday. At the same time, the S&P 500 met resistance around the 4,000 level, and that remains a potential ceiling to watch.
Stock Market Looks For Leadership
While the major indexes are in confirmed uptrends, investors still need stocks to break out and make gains. In that regard, the picture is still mixed.
The energy sector has been leading the market for much of the year and continues to provide opportunities.
In the field services industry group, $Schlumberger (SLB.US)$ ,$ProFrac Holding (PFHC.US)$ and $Tidewater (TDW.US)$ are progressing from breakouts. Drilling companies $ChampionX (CHX.US)$ and $Noble (NE.US)$are also engaged in strong uptrends.
Pipeline stocks are leading, too. $Flex LNG (FLNG.FTOLD.US)$ is one stock to watch as it works on a cup base. $ONEOK Inc (OKE.US)$ is forming a double-bottom base.
Contract manufacturing has emerged as a hot spot in the beleaguered tech sector. $Sanmina (SANM.US)$, $Fabrinet (FN.US)$ and $Plexus (PLXS.US)$ stand out in that No. 6-ranked group.
Finance, Manufacturing Among New Leadership
In other stock market sectors, a handful of brokers and financial firms are showing leadership: $Charles Schwab (SCHW.US)$ is forming bases and is part of the MarketSmith 250.
Heavy truck maker $PACCAR Inc (PCAR.US)$ and diesel engine manufacturer $Cummins (CMI.US)$ bring some diversity to the list of recent breakouts.
There's a good group of high-rated stocks setting up in bases.
$Array Technologies (ARRY.US)$, $RBC Bearings (RBC.US)$, $Mueller Industries (MLI.US)$ and $Automatic Data Processing (ADP.US)$ add to the eclectic list of stocks in bases.
But technology is one sector that is lagging in the new uptrend. Of more than 50 stocks in MarketSmith's list of recent breakouts, there are almost no software or chip companies.
A10 Networks is near a 19.15 buy point and cleared resistance around 16.50. Chipmaker $GlobalFoundries (GFS.US)$ is near the 66.06 buy point of a cup base. $Super Micro Computer (SMCI.US)$, $Super Micro Computer (SMCI.US)$ is a hardware maker now extended from its 75.03 buy point.
More chart patterns will appear with time.
Remember, the bear market destroyed the leadership — much of it in tech — that led the prior bull market. Fresh leadership could take time to develop and prove itself. With the amount of breakouts and bases investors have to work with right now, an exposure level of 20% to 40% seems adequate, as The Big Picture has noted.