Did the bubble burst?

What an incredible week!!

It seems like if you don't like the price one day in the stock market, just wait a day and the market comes back. This will not continue forever. Sooner or later the downward trend in the stock market will reverse and go higher. But for now, the trend according to our market indicators is pointing lower.

Vote in this weeks poll: Do you think that stocks have bottomed out?

In the world of commodities, a bubble burst last week when we witnessed a dramatic drop in gold.

After trading as high as $1,030, gold hit an air-pocket as all the hedge funds bolted for the exit door at the same time. This mass exodus pushed gold dramatically lower and close to the $900 level in just a few days.

Has the commodities bubble finally burst?

Yes, we believe the bubble has burst. We expect commodity prices will continue to be volatile and more on the defensive in the weeks ahead.

This may not be good news for the hedge funds who have seen many of their profits evaporate in past few weeks. As we are coming to the end of the Q1, how many of these funds are going to show a negative or a flat return for the entire year?

You don't have to hold any fund-raisers for hedge fund managers, as they have done pretty well over the past few years. Now there are just too many inexperienced hedge fund managers doing the same thing. They are all chasing too few opportunities in too few illiquid markets. Maybe they all read the same book on how to start a hedge fund.

We expect that 2008 will be remembered for its volatility and the fact that many hedge funds closed up shop because of disappointing returns.

A few days after the end of Q1, we will be publishing our first quarter results. You may like to take a look at our Q3, Q3ag and our Q4 results.

I think you'll agree, that we have done very well in some difficult and volatile market conditions.

Take a look at how we approach and analyze the gold market in this short video that we've just finished.

Then take a look at our other educational trading videos in our "Traders Whiteboard" series.

If it all makes logical sense to you, I invite you to join thousands of other smart traders who rely on MarketClub everyday to spot winners in the stock, futures, metals and forex markets.

Every success in the future.

Adam Hewison

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4 thoughts on “Did the bubble burst?

  1. I have some other angles of view.

    For one, I look at several dimensions in the markets, including exhaustion and belief. One must also consider long term supply and demand.

    For the near term, I just see that Gold has exhausted it's run up. There's all sorts of catalysts that could have caused the profit taking sell off, but the point is, when exhausted one way, it can only go the other. When there's 97% bullish sentiment in an asset, where else can it go?

    Now that the correction is taking place, the belief levels drop but the underlying fundamentals do not (supply and demand). While this is going on, bullish sentiment drops significatly and so to does belief. Eventually, the fundamentals will take over when the weak hands have been flushed out but belief will rise slowly, and then eventualy quicker, just like it's rise above $1000 did, when the weak hands try to jump on again.

    This is my case based on the longer term supply and demand picture being a bullish one. This does not make it right though, just my opinion

  2. Hi Adam,

    I'm a new user to your site but certainly not a new user of technical analysis. In the short term...GOLD was over bought and a quick and dramatic plunge generally washes those weaker souls out of the market...any market for that matter. However, the secular uptrend for GOLD is NOT in danger of being broken as of this submission. I see strong support at the 840 and 760 (give or take $10) areas. In the ultra short term...my chart analysis tells me a trading turn is here...maybe all the way back to 990.

    It's been my experience that bubbles burts when the trade is the most popular trade in town for the general public...not just the hedge funds

    I'd appreciate your thoughts.


  3. Adam,

    It seems you hit the nail on someone who is nervous about his own predictions. And about his own company share values that have taken a hit last two years.

    He doesn't accept any comments on his website, that takes too much guts I suppose!

    Here is what he wrote about you... asking his follower "Friends" to do the dirty work


    Posted On: Monday, March 24, 2008, 12:43:00 PM EST
    Author: Jim Sinclair
    Dear Friends,

    I am watching a gold expert (God protect us from experts). His name is Adrian of Marketclub.com.

    I wonder if Mr. Adrian H. would accept a SIGNIFICANT and PUBLIC wager that he is so wrong on every point he made on gold and PGMs that he will look like a world class schmoo by 1/1/2009 and a certifiable nut by 1/1/2011. Lets see if this expert is willing to put his money where his mouth is.

    If anyone out there knows this guy tell him to contact me about the wager.

  4. Bubbles occur in credit and stock markets, but hardly in commodity markets. The high prices of commodities are a reflection of the plunge in the value of the dollar due to the counterfeiting racket known as the FED.

    Bernanke, the counterfeiter, dumped a lot - a LOT - of phony paper into the banking system (it is a banker's racket afterall) and the speculators pulled out of gold to grab some profits from the intoxicated in the credit markets. Fanny May, drunk with joy, jumped up and danced on the table.

    Very soon, the sun will rise, the hangover will return and Gold will again reflect what it always reflects: counterfeiting dollars causes dollar prices to rise - for the sober and thoughtful, it's no surprise.

    Pretending that the temporary drop in the price of gold is a bubble popping is pretending that counterfeiting is real and gold isn't. Too lame for words.

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