Is the Stock Market Going to Crash?


Is the Stock Market Going to Crash?

Traders are wondering is the stock market going to crash in 2018?

As of this week’s low, the SP500 market is down just over 11.4% in 39 calendar days.

This pace of selling is less intense than what markets saw in February of – 11.81% in just 14 days!

Stock Market Crash in October?

Stock Market Crash in October? – Grey area is 2018 price action for SP500 Index.

 

But how is this in relation to the overall stock market trend?

Despite this sell off being called a crash, could this just be the beginning?

 

Is the Stock Market Going to Crash – What are Fundamentals Saying?

Looking through a fundamental lens the stock market is overvalued right now.

Read more about why the market is overvalued by clicking here.

Stretched valuations and overextended economic cyclesend with massive market moves to the downside.

 

Is the Stock Market Going to Crash – How Low Can we Go?

The question I am asking myself is not if the market is crashing, more importantly where is it likely to stop?

In short, the stock market is crashing.

Prices dropped into correction territory (more than 10%) from all-time highs on October 24th.

Consequently, you can see every rally being sold aggressively to send prices in a confirmed and solid downtrend.

 

Stock Market Crash Scenarios – Support Zones Below

Looking at a weekly chart of the SP500 reveals a shocking answer.

In the first support scenario, we can see a 17% drop down to near 2,445.

The second support zone is a market drop of 30% and at the 2,065 level.

Lastly, the third support is down at 1,812 and a total of 38% drop.

 

Stock Market Crash Scenarios - How Low Can we Go?

Stock Market Crash Scenarios – How Low Can we Go?

 

Consequently, I know you are thinking how likely is each of these drops?

And more importantly, what do past big market crashes look like?

 

Is the Stock Market Going to Crash – The Damage in 2008 and 2001 Compared

I am going to take a look back now to the most recent massive market crash.

In 2008, excessive borrowing and leverage brought down the financial system.

How much do you think the market dropped then?

The stock market crashed 57% in over 500 calendar days.

In 2001, the drop is just over 50% in the span of 900 days.

Therefore, you can clearly see that each new market crash is deeper and occurs faster.

But what if you just assume that 2008 will repeat itself in magnitude?

In this chart you can see the market crash in 2008 in orange, and the market crash in 2001 in red:

Therefore, if the pace of 2008 is happening at the moment the second support zone at 2,065 is an idea target.

Take a look at the date range at the bottom – selling pressure will take us into the first quarter of 2020.

But if a 2001 pace ensues, it is a longer term move through 2021 but a lower magnitude loss.

 

Stock Market Crash Comparison

Stock Market Crash Comparison

 

Is the Stock Market Going to Crash – Conclusion

The stock market is crashing already.

In the first step, a correction of 10% happens.  Selling is followed up by a relief rally, which is then followed by a sharp leg lower.

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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.