Simon Church was the Royals' match-winner with a close-range finish in injury time after Lewis McGugan's 88th-minute penalty looked like being enough to salvage a draw for Forest.
Davies said: "You have certainly been looking at candidates to finish in the top two this afternoon. They might have work to do but they have momentum on their side and have the qualities that could take them all the way.
"We're obviously disappointed but there is still everything to play for as far as we are concerned. There are still 18 points at stake and that's an awful lot.
"If anybody thinks the top six will stay as it is until the end of the season, I beg to differ.
"For a lot of clubs there is still all to play for in the promotion issue and it will go down to a photo finish - I'm sure of that. We will go again in Tuesday's match against Burnley and do everything we can to get ourselves where we want to be in May."