Dow Rally Is a Head Fake Ahead of 50% Stock Market Crash

By CCN: Despite today’s 2% rally in the stock market, critical support levels have been breached that may signal the beginning of a 50% market decline.

The Stock Market Is Falling Apart

With the stock market trading at its third most expensive level in history, led by outrageously overvalued FANG and growth stocks, it’s only a matter of time before it regresses to its mean valuation.

That time appears to be shaping up as now.

The three major indices in the stock market – the Dow Industrials, NASDAQ, and S&P 500 – have all fallen below their long-term daily, weekly, and monthly moving averages.

When prices dip under these averages, the stock market tends to fall until they hit some other level where buying support is likely to be found.

The Dow Industrials Are Cracking

This daily chart of the Dow Industrial shows a “head-and-shoulders” formation for which the minimum downside target is 23,600, or about 7%.

The Dow has breached important support | Source: StockCharts.com

That would take the Dow Industrials to a 15% correction.

If that level is breached, the next stop would be a decline to December lows, another 8%.

What’s critical then is whether or not support holds there.

If not, the next stop is on the rising trend line of the monthly chart at 20,400.

The Dow monthly chart shows 50% downside. | Source: StockCharts.com

If the stock market reaches that point, the total market crash will have hit 25%.

The next leg down brings the stock market to 14,000 – a nearly 50% market crash.

The S&P 500 Is Stumbling

Over at the S&P 500,  which many investors use as a proxy for the stock market, the same head-and-shoulders pattern has appeared. The minimum downside target is 2,720, or 7%.

The remaining levels of support all mirror the Dow Industrials. The monthly chart shows a double top which would serve as support but again would mean a 50% market crash from the top.

The S&P 500 monthly chart paints a grim picture | Source: StockCharts.com

FANG Stocks Are…

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