Mr. Market Smells Blood

There were numerous articles this week about hedge funds that had large drawdowns as a result of the commodity crash. What was missing from those articles were stories of liquidations. In one of the articles I read a hedge fund manager with a nearly 20% drawdown stood firmly by his beliefs that commodities would go higher.

Markets generally don't allow wounded animals to live, especially the leveraged ones, and the market smells blood. The commodity plunge has continued overnight and this feels like the liquidation stage. This should lead to a better bounce in commodities but there can be a lot of damage before that bounce begins. I would expect a bounce to begin by early next week. Commodity stocks should be the first to find stability followed by the commodities themselves.

 

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