Dow - Only a 20% correction ?

Marc Faber is expecting a 20% correction.

“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the fiscal cliff — because there won’t be a ‘fiscal cliff.’ The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20%, in my view.”

Click 'Prepare for a painful market meltdown' for his interview with CNBC.

At this moment Marc Faber is calling for a 20% correction. If Dow does fall in tandem with S&P, it will drop to around 10,900 level. He didn't say what will be the direction of the market after that. Whether the 20% drop is the overall correction or whether the market will take a breather before the next 20% down.

I personally feel that Marc Faber is talking about the possibility No. 3 mentioned in my previous article.

Under this scenario, a most optimistic outcome for mega wave 2, the correction will end at 10655 level, the low of major wave (4), a strong support level. See the following chart.

It would be interesting to see what will be his assessment on the world economy after the 20% drop has taken place, and what will be his opinion on the direction of the S&P. 

To me, the 10655 level is very crucial. Once the Dow dropped below the 10655 level, I will monitor for a possible 100% retracement for mega wave 2 to reach the 6547 level until such time that it can be ruled out.



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