Stocks declined sharply at the opening bell on Tuesday but recovered strongly after the oil price bounced back from a 5-year low. It closed at 17,801 for a 51 points drop (-0.3%)
With this drop, I have ruled out the diagonal mini-wave 5 that I mentioned yesterday. I am more inclined now to treat the last record high of 17,958 as a failure mini-wave 5.
If mini-wave 5 has ended, the immediate question is on the magnitude of the current correction.
If Nouriel Roubini is correct
If Nouriel Roubini's last Thursday (4th Dec) statement that 'the asset bubble won't pop until 2016' is ultimately proven right, then the current correction is either a 3% sub-wave ii pullback or an 8% wave (xiv) correction.
If Marc Faber is right
Marc Faber has been talking about a major correction of 20% or more (so is Tan Teng Boo of i-capital) in the last two years. Last month Marc Faber told CNBC, "I will soon be proven right". If Dow is heading for Marc Faber's direction, it is likely that either the major wave (5) or the mega wave 1 has ended.
Under this scenario, a major wave (6) correction is expected to be about 15%, that is a 2,700 points drop to 15,250 level.
The worst case scenario is a mega wave 2 correction where I would say, the assets bubble has burst. If we are lucky, mega wave 2 will go for a 40% drop to Dow's previous major wave (4) low of 10,655 level for a 7,300 points drop. If we are unlucky, mega wave 2 can go for a 100% retracement to where mega wave 1 started, the 6,547 level - March 2009's low.
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