Bad news for stock investors: a rarely watched indicator is flashing a high chance of a market crash within three months, likely tied to the AI bubble.

• A wide gap opened up between the Dow and the Nasdaq over about a week, a pattern that since 1971 has led to a bear market within three months about two-thirds of the time.
• The likely cause is the AI bubble deflating, with the Bank of International Settlements warning that weak returns on AI spending could turn the boom into a bust.
• This matters more than past crashes because AI spending drove most of recent US economic growth, so an AI pullback could trigger a recession as bad as 2008.
• "Circular financing" is a red flag: AI firms like OpenAI, Nvidia, and Microsoft pass the same money around in a loop, inflating each other's revenue with cash raised from markets rather than real profits.
• The suggested play is a "pairs trade" — betting one weak stock falls more than the broader market, instead of betting on the market's overall direction.

Outlook: A 20% or deeper drop in the S&P 500 is seen as likely over the next three months if the AI spending boom unwinds.