The US 100 index fell almost 8% last week, sliding from Monday's opening level of 28,504 to a seven-month low of 26,248 on Friday, before tentative dip-buying lifted the close to 26,969. Broker Pepperstone, in its weekly technical note, frames the central question for traders: whether Friday's apparent capitulation provides a short-term floor, or whether another wave of selling pushes the index towards lower technical support levels.

The sell-off accelerated after last Tuesday's US midterm elections. Democratic success in regaining control of Congress fuelled concerns about tighter regulation of artificial intelligence, semiconductor exports and the expansion of energy-intensive data centres. Those risks, Pepperstone notes, potentially threaten the profitability and growth prospects of some of America's largest technology companies.

The political shock may, however, have acted only as the catalyst for a correction that had been building. Growing anxiety over stretched technology valuations and the sustainability of the AI investment boom had already unsettled investors. The resulting wave of selling, potentially amplified by leveraged position liquidations (forced closure of borrowed-money trades), left many of the market's most popular technology stocks with significant losses.

How close is the index to a bear market?

A bear market is conventionally defined as a decline of at least 20% from recent highs. The US 100 does not yet meet that threshold, but the fall from the October 6 all-time high of 31,386 to the November 6 low of 26,247 represents a 16.4% drop. Traders, according to Pepperstone, are questioning whether that low marks the full extent of the sell-off, or whether risks remain skewed towards further declines and a shift from bullish to bearish themes.

What do the inflation numbers mean for the rebound?

Two US inflation releases could shape the coming week. The Consumer Price Index is due on Tuesday at 13:30 GMT, followed by the Producer Price Index on Friday, also at 13:30 GMT. Both may prove influential for expectations around the Federal Reserve's December interest rate decision.

The stakes are clear. Signs of moderating inflation could support technology stocks by reducing the perceived likelihood of another rate hike. Stronger-than-expected figures, by contrast, may reignite concerns about further monetary tightening, pushing US Treasury yields higher and placing renewed pressure on US 100 constituents.

Friday's small recovery may encourage buyers who believe the worst of the selling has passed. Yet with confidence in the technology sector badly shaken, Pepperstone cautions that the challenge lies in whether sufficient buying interest returns to sustain a rebound while investors remain wary of further downside.

Which levels decide the next move?

Much depends on how key support and resistance levels hold on a closing basis this week. The sell-off has brought the index towards support at 26,064, the 61.8% Fibonacci retracement (a ratio-derived price level used to gauge potential reversal points) of the rally from March 31 to October 6. How that level behaves on a closing basis could offer important clues on direction.

Potential support levels, per Pepperstone's analysis:

• 26,064 — the 61.8% Fibonacci retracement of the March 31 to October 6 rally; a closing break below it could trigger extended weakness
• 24,757 — the April 13 low, the next downside objective
• 23,767 — the April 7 low, a further target should weakness persist

While 26,064 holds, the sell-off may prove corrective rather than the start of a broader bearish trend. Resistance levels then come into focus:

• 27,238 — the 38.2% Fibonacci retracement of the November 4 to November 6 decline; the first level to monitor
• 27,544 — the 50% retracement, in play after a close above 27,238
• 27,850 — the 61.8% retracement
• 28,840 — the November 4 failure high, the ceiling for a fuller recovery

Pepperstone notes that its material is a marketing communication rather than independent investment research, and does not constitute a recommendation or offer to buy or sell any financial instrument.