S&P 500 forecast after the AI bubble panic: Why Friday’s selloff is not yet a major bearish reversal
Friday’s selloff in AI and chip stocks looked alarming, but the S&P 500 E-mini futures (ES) are telling a somewhat less frightening story. Following the October 16 close, my four-hour technical analysis still shows a decline within a broader trading range, rather than a confirmed major bearish trend reversal. The next important test is around 7,668, and I explain why in my video below:
AI stocks were hit hard, but the broader market tells a different story
For investors holding semiconductor and AI-related stocks, Friday was certainly an uncomfortable day.
As Adam Button reported in AI names fall as the Nasdaq comes under fresh pressure, selling extended beyond chipmakers into AI infrastructure, cloud computing and cybersecurity companies. Some individual stocks suffered much steeper losses than the broader equity indices.
The investingLive Americas market wrap showed the Nasdaq down approximately 2.3% on Friday, compared with a 1.2% decline in the S&P 500.
That difference is worth paying attention to.
A sharp decline in popular technology stocks can create the impression that the entire stock market is entering a major collapse. However, weakness in market leaders does not necessarily mean that the broader market has already confirmed a bearish reversal.
We also saw a different picture internationally. European stocks finished higher on Friday and posted weekly gains, illustrating how unevenly the selling pressure was distributed.
This does not make the risks in AI stocks disappear. It simply suggests that we should distinguish between a sharp sector selloff and a confirmed breakdown in the broader stock market.
And that brings me to the S&P 500 chart.
Watch my S&P 500 futures technical analysis and forecast in the video below. I explain the trading range, the price channel and the conditions that would make me considerably more bearish.
Why the S&P 500 still looks like a trading range
The central observation in my analysis is that ES remains within a recognizable trading range.
On the four-hour chart, price has been moving through alternating advances and declines, with sellers taking control near resistance and buyers responding around support.
I also identify a price channel that has helped frame these movements since September. The channel’s boundaries and midpoint have repeatedly interacted with price, including around the latest decline.
In particular, the recent selling followed a rejection near two overlapping resistance references: the channel’s midpoint and the upper boundary of the range’s value area.
The value area is the price region where roughly 70% of the trading volume occurred over the period being examined. Its upper and lower boundaries can help identify where the market has previously accepted substantial trading activity.
After failing near resistance, ES moved back toward the lower boundary of that value area.
This brings us to an especially interesting part of Friday’s price action.
S&P 500 futures: Why 7,668 matters
Around 7,668, several technical references come together.
First, this is approximately the lower boundary of the value area for the range examined in the video.
Second, the October 16 decline approached the lower boundary of the price channel.
Third, the market was revisiting a support region associated with earlier lows around September 18 and October 1.
These are three different reasons why traders might pay attention to approximately the same area.
For example, some short sellers may decide to take profits when price reaches established support. Other traders may consider a speculative long position, while traders following the channel could view the lower boundary as an area where a rebound becomes possible.
I am not claiming to know which participants were buying or covering shorts on Friday. The observation is that price reached an area where several recognizable support references converged.
The important point is that Friday’s decline had not yet produced the sustained breakdown below this area that I would want to see before interpreting the move as a more significant bearish development.
That does not mean support must hold on the next test. It means the market has not yet provided sufficient evidence for my more bearish scenario.
What would turn the S&P 500 outlook more bearish?
This is where my forecast becomes conditional.
In my opinion, the more meaningful warning would be two or three consecutive completed four-hour candles closing below approximately 7,668.
Why not simply react to the first move below that level?
Because markets frequently cross support or resistance briefly before reversing direction. A momentary break can reflect a liquidity event or a failed attempt to establish a new trading range.
Several consecutive closes below support would provide stronger evidence that sellers are establishing acceptance at lower prices, rather than merely pushing the market temporarily beyond a familiar boundary.
An additional development worth watching would be a subsequent recovery attempt that fails to reclaim the broken support.
For example, if ES breaks below 7,668, rebounds toward that area, encounters renewed selling and then continues lower, the bearish interpretation becomes more credible.
Even then, a downside break would not automatically establish a long-term bear market. It would first signal that the current trading range is potentially resolving lower, with the wider trend requiring further evaluation.
And what if S&P 500 support holds?
The alternative is that buyers continue defending the existing support region.
If ES holds around 7,668 and begins recovering, the next question becomes whether price can reclaim the channel’s midpoint and challenge the higher-volume resistance region that previously attracted selling.
Such a recovery would fit the existing trading-range interpretation.
However, I would be careful about declaring a new bullish breakout simply because the market rebounds from support.
There is an important difference between a recovery within a range and a sustained move out of that range.
A rebound could improve the immediate technical picture while leaving the broader market in consolidation.
For now, I am not automatically bullish or bearish. My interpretation is that the recent weakness is meaningful, but the evidence for a major bearish reversal remains incomplete.
The next catalysts: Technology earnings, inflation and the Federal Reserve
Technical support is only part of the picture.
Investors also need to consider what could change market sentiment as trading resumes.
The upcoming earnings calendar could be particularly important for determining whether AI-related selling remains concentrated in certain stocks or spreads further across the market.
As discussed in Earnings week ahead: Banks were upbeat on the economy, now onto tech, the latest bank results suggested that important parts of the US economy remain resilient. The next earnings announcements will provide another opportunity to evaluate how businesses are navigating current conditions.
Meanwhile, inflation, energy prices and monetary policy remain potential sources of volatility.
Giuseppe Dellamotta’s review of changing interest-rate expectations illustrates how traders are reassessing the Federal Reserve outlook amid persistent inflation concerns.
One reason this matters for stocks is that higher costs do not necessarily translate into higher corporate profits. Justin Low offers a useful explanation in Why higher inflation doesn’t always mean bigger corporate profits.
These macroeconomic concerns also formed part of my earlier Dow Jones futures analysis for October 16, although that analysis reflected an earlier market snapshot before Friday’s selling intensified.
Taken together, the question for the coming week is whether disappointing developments cause the broader indices to break established support, or whether the latest weakness remains largely a correction within existing trading structures.
My S&P 500 forecast: Respect the selling, but wait for confirmation
My main takeaway after reviewing Friday’s price action is straightforward.
The selling pressure is real, particularly in technology stocks, but the S&P 500 futures chart is not yet confirming the kind of major bearish trend reversal that some investors may fear.
The market has reached an important support region, and the next reaction around 7,668 could provide useful information.
Holding that region would keep the existing trading-range interpretation intact. Sustained four-hour closes below it, particularly followed by a failed recovery, would make me reassess the bearish risks more seriously.
The market could certainly move lower. I am not ruling that out.
But there is a difference between anticipating a major reversal and having sufficient evidence that one is actually developing.
For traders and investors, recognizing that difference can help avoid making decisions based purely on frightening headlines or the latest sharp move in a few popular stocks.
S&P 500 forecast on a wider perspective (the simple weekly chart)
I typically perform some heavy and sophisticated analysis with lots of data but for traders and investors at investingLive.com, I like to simplify and show them the simple charts. Less is more for many of our readers. That is where apx 7600 (shown as 7,608.89 below) comes in, if S&P 500 decides to sell some more.
S&P 500 futures: The weekly 20 EMA in my above simple chart could become an important support test
S&P 500 E-mini futures (ES) remain in a broader uptrend on the weekly chart, although the latest pullback suggests buyers are facing renewed pressure near the highs.
During the week ending October 16, futures approached the previous week’s high near 7,900, but failed to extend the rally. The contract subsequently declined to close around 7,703, a weekly loss of approximately 2.1%.
Despite this weakness, the broader bullish structure has not yet been decisively undermined.
The first area to watch is around 7,670-7,680. The latest weekly low near 7,676 almost matched the late-September low around 7,673, making this an immediate reference area for potential stabilization.
Further below, the 20-week exponential moving average (EMA), currently around 7,609, could become an important support reference if the decline continues.
This moving average has been rising alongside the broader advance. However, price has not yet tested it during the latest pullback, so its ability to attract renewed buying interest remains unproven.
A decline toward the EMA followed by a convincing weekly rebound would support the interpretation that the market is experiencing a correction within a continuing uptrend.
Conversely, a completed weekly close below the moving average, followed by an unsuccessful attempt to recover it, would suggest that the correction may be developing into something more significant. The early-September lows around 7,575-7,585 provide another nearby structural reference.
On the upside, a sustained recovery toward 7,850-7,900 would help restore the bullish case.
The takeaway: The weekly 20 EMA offers a potentially useful future support test, but the more important evidence will be how prices behave if they reach it. A moving average identifies an area worth watching, not a guarantee that buyers will defend it.
This analysis reflects the October 16, 2026 market close and is my technical interpretation as of October 17. It is educational commentary, not financial advice.
This article was written by Itai Levitan at investinglive.com.