Is Market Fear Overblown Amid S&P 500 Breakdown?

“…it is admittedly crunch time if you are focusing on the SPX. It enters the last trading days of the month just above a level where buyers have surfaced in recent weeks.”

            -Monday Morning Outlook, October 26, 2026

As popular as AI and technology investing have become, I am sure you are aware of the carnage certain stocks experienced last week following earnings. Intel (INTC) and Alphabet (GOOG), for example, stole headlines with earnings-related beatdowns. Amazon (AMZN) faced its share of negative earnings-related headlines but finished less than 1% lower. Meanwhile, Reddit (RDDT), Twilio (TWLO) and Roblox (RBLX) added mightily to the earnings woes in the technology sector.

Where did it leave us after the dust settled?

Finally, the S&P 500 Index (SPX -- 7,580.07) moved out of its 7,600-7,800 range, where it had been stuck for six weeks. With Friday’s intraday low at 7,528 still above the mid-September intraday low of 7,508 that was met with immediate short-term buyers.

Last week’s close below 7,600, which defined the top of the May-July range, should put bulls on alert, though it is too early to panic.

The close below 7,600 is one of a few necessary ingredients for more sustained selling that could result in a corrective move or more of a lengthy decline. But note that the SPX did not close below September’s low at 7,514, another level that I have mentioned as critical before establishing hedges. So bears should be on alert too, as the mid-September close below 7,600 was met with immediate buying.

“Note that the 22 level has capped multiple VIX spikes this year, which might be considered a short-term risk for bears. Also, the VIX closed below 21, which is 50% above last month’s low and potentially a level where portfolio insurance buyers, whose activity can act as a coincidental headwind, viewed portfolio insurance as too expensive. Last week’s VIX spike is in the context of the SPX above range lows and still above its September close. As I said last week, I think it is worth it to pay more for portfolio insurance in reaction to a technical breakdown, as the levels I am focusing on must be breached before a serious move to the downside can occur.”

            -Monday Morning Outlook, October 19, 2026

Additionally, and with respect to the “so where are we?” question with respect to the negative technology earnings headlines, check out Friday’s action in the Cboe Volatility Index (VIX--19.42). It struck a familiar chord, with an intraday move above 22.00 before closing well below this level.

Per the chart below, note that with the exception of March, when the SPX fell below its 200-day moving average, multiple VIX advances have been capped at 22.00. From this perspective, this presents a risk to the bears in the immediate days and weeks ahead with the information we are working with as of Friday.

Despite the headlines, which are heavily skewed toward AI and technology stocks and thus skewed negatively toward the overall market, breadth continues to improve, as measured by the percentage of SPX constituents above their 50-day and 200-day moving averages.

“… the sentiment backdrop favors the bulls, as the fear is more reflective of a broken index from a technical perspective, even though the SPX is still trading significantly above longer-term moving averages as breadth improves. Additionally, the SPX has been higher in 15 of the past 20 Novembers. Of the five negative Novembers, three saw declines of less than 1%"

-Monday Morning Outlook, October 26, 2026

So what is all the fuss?

Per the chart below, the fuss could be about the price action in big-cap technology names. Note in the chart below how the Invesco QQQ Trust (QQQ) exchange-traded fund’s Friday intraday low was exactly 10% below the October closing high and just above its 200-day moving average. It would suggest that everyone is glued to the price action in technology and sentiment, therefore, has grown extremely pessimistic.

Note in the chart below that I italicized the words “could be” as it relates to growing pessimism surrounding SPX component stocks amid improving breadth among its constituents.

The graph below represents the growing bearishness among option buyers of SPX component stocks, which is now very close to levels that occurred with the “Tariff Tantrum” in early 2025 and the onset of the U.S.-Israel conflict with Iran that began with bombs flying in late February.

My thought was that the price action in the big-cap technology names – as measured by the QQQ – was influencing the increasingly bearish behavior of option buyers. Big-cap tech names tend to have the most heavily traded equity options. 

Therefore, I did some digging to see if the top 10 most heavily traded options among SPX components had 10-day, buy-to-open put/call ratios that were unusually high and skewing the ratio.

What I found was price action in the QQQ among a few heavily-trade tech stocks was not influencing the pessimism on display among all SPX component names. Below is the direct wording from an email I routed to our trading team upon reviewing the data:

AAPL/NVDA in that top 10 and not exactly exhibiting price action that might warrant the high relative ratios. 

AMZN, NFLX, INTC, ORCL and GOOGL… low p/c ratios that are below constituents, despite awful price action.

In other words, the highest put/call ratios are on stocks like Apple (AAPL) that are not selling off as badly as other technology stocks. And the technology stocks that are selling off the most or entrenched in bearish trends are not scaring option buyers. In fact, these traders are busy trying to find a bottom in these stocks.

My takeaway after this deeper dive into the sentiment backdrop is that fear is approaching an extreme, but the technical backdrop is not justifying this level of fear. Therefore, we could be on the cusp of a rally that is driven, in part, by an unwind of pessimism. I remain open to the fact that I don't know for certain, and would still recommend implementing portfolio hedges only if the SPX breaks below its September low and the VIX takes out the 22.00 level.

Todd Salamone is Schaeffer's V.P. of Research

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