AI Selloff and Sticky Inflation Test S&P 500’s 7,100 Support

S&P 500 Heat Map Shows AI Selloff Beneath Defensive Strength

It’s not a good sign when defensive sectors such as healthcare and consumer staples are the index leaders. But that’s the case today because AI and semiconductor names like INTC (-9.18%), MU (-7%), AMD (-5.10%), AVGO (-3.98%) and LRCX (-4%) are all getting hit after a strong couple of days. This could be viewed as profit taking, inflation pressure, rising oil and worries around possible government intervention in AI profits. ORCL (-5.49%) is also caught in the unwind and TSL (-4.06%) looks like a mix of broader de-risking and caution ahead of Musk’s China trip.

But healthcare is easing the losses in the Index with GILD up around 3% and LLY up 2.79%. But these ebb and flows are all part of the market moves in a bull trend and shouldn’t be too worrying for traders.

Semiconductors Drag the Tape Lower as Healthcare & Staples Cushion the S&P 500 Index

S&P 500 heat map showing losses in semiconductors, including Intel, Micron, AMD, Broadcom and Lam Research, while select healthcare and consumer defensive stocks trade higher

Source: TradingView

US Inflation Reaccelerates as CPI Tops Forecasts

US CPI is slightly above forecasts, posting a 3.8% increase in May. This is sticky. It strengthens the higher for longer narrative, cornering the Fed as the US 10 Year yield approaches 4.5%. Indeed, this is a short-term headwind for the S&P 500.

US YoY Inflation Rises to 3.8%, Keeping Fed-Cut Hopes Under Pressure

Bar chart of US year-over-year inflation from August 2025 to May 2026, showing actual CPI rising to 3.8% in May versus a 3.7% forecast

Source: TradingView

S&P 500 Cracks as Market Breadth Below 50%

Finally the cracks of the market breadth are starting to show as the S&P 500 Index has a down day that is over 50 bps. There’s a little over 40% of S&P 500 stocks that are over its 20-Day MA so there’s still some room to go before any real capitulative downward move. But if this market breadth indicator were to quickly flip back above 50%, that’s a huge sign of how resilient this market is.

S&P 500 Eases Off as Short Term Breadth Below 50%

Daily S&P 500 chart showing the index near 7,340, above its 20-day, 50-day, 100-day and 200-day moving averages while the percentage of stocks above their 20-day moving average falls to 43.80%

Source: StockCharts.com

S&P 500 Renko Pullback Tests Short & Medium Term Support

The bearish divergence from what the z-Score SMA was signalling is finally kicking in. The Supertrend has flipped negative and the Renko bricks are now heading towards 50-SMA support. The pullback seems as though it can continue as both the RSI and Z-Score SMA has more room to move lower. Nonetheless the overall trend is still upwards as there are many Renko bricks to go for the S&P 500 Index to reach the 500-SMA.

12-Brick Renko Shows S&P 500 Cooling After Strong Upside Run

S&P 500 12-Brick Renko Chart Showing Price Pulling Back with RSI Near 50, z-Score Near 0, and Pricer still above 50-SMA and 500-SMA

Source: TradingView

The Verdict

Current Trend Direction: Bullish

Bias: Positive

Support Levels: 7,100, 6,625

Resistance Levels: 7,450, 8,150

Medium Term Path: The road for the S&P 500 is still higher despite this downmove. Indeed, there is a bit of choppiness but all this is part of market movements. It can’t go up everyday. Or it shouldn’t go up everything then that’s a true sign of market exuberance. For now, 7,100 is the medium term support level. Once breadth stabilizes and the z-Score SMA starts to trend higher we can see a return to the 7,450 resistance level.