24/7 Wall St.

If you have spent much time watching financial market gurus and market pundits, you know all about Marc Faber. He has adequately predicted and warned of serious financial turmoil on a timely basis before, and now Faber is warning that a 1987-style stock market crash is coming again. Faber publishes the Gloom, Boom & Doom Report, and he is featured routinely on CNBC. That is where his market crash prediction (or warning) was made.

There was recently a 1,709 high on the S&P 500 Index, yet a high a number of 52-week lows are happening into the market peak. What concerns Faber in his CNBC interview is that some 170 stocks have hit 52-week lows in recent days, and Faber thinks that between 10 and 50 stocks are carrying the entire weight of the market.

Before you think of a true market crash, don’t think about a 2008 and early 2009 crash, it is not that sort of prediction. Stocks rose almost 20% so far in 2013, and Faber is calling for a drop in the market of 20% or so. The gains and drop were even greater in 1987.

Before you panic and dump all of your stocks and mutual funds, note that Faber seems to be often more concerned than excited. We have been getting inquiries over a secular bull market call, and frankly a 20% correction might not even change that. Jay Lefkowicz of Concept Capital in New York recently gave us charts and an interview using Fibonacci analysis that points not just to 2,000 on the S&P 500. His target went even north of 2,500, all the way up to 2,584, for the S&P 500. If that holds, investors have more than 50% broad market upside.

We asked Jay Lefkowicz on Friday morning for a comment on Faber’s crash prediction. He did not exactly say that it would be a great thing to see, but it apparently would not change any of the predictions he gave us in our interview. Lefkowicz said:

A 20% decline from this point takes the S&P 500 to about 1350, which is above the 38.2% Fibonacci retracement of the rally since the 2009 low (about 1310). A violation of 1310 would have me rethink the long.

Our take here: This is effectively an implied upside reward ratio of 2.5 to 1 if both predictions are equally weighted, and that is better than good in a risk-reward analysis. 24/7 Wall St. will not tell you that if Marc Faber is right it would be a good thing and that new psychological damage would not be created. At the same time, a 20% pullback might just finally give the public the entry point that has been missed over and over during the rally over the past four and a half years.