May 2010 was a month for the record books, literally. It was the worst May for the Dow Jones Industrials and second worst for S&P 500 since 1940. NASDAQ had its second worst May ever. Only May 2000, at the beginning of the tech bubble bursting, was worse. Russell 1000 and 2000 also had their worst May performance ever.
There were only two sectors that posted a gain in May: Bear/Short (+ 11.8%) and Bonds (+0.5%). But not all Bear/Short and Bond funds posted gains. Bond-tracking Bear/Short funds posted losses as did high yield, corporate, some capital credit and certain international bond funds. Curiously absent from this short list of advancing sectors is Natural Resource/Gold. There were just six funds from this sector that were able to post gains, five physical-gold-types and one futures-based. Treasury bonds continue to be the safe haven of choice for the majority of traders. Liquidity and depth of the treasury market far exceeds the gold market.
Bond funds claimed six positions in the 1-Month Leaders list, followed by two currency funds, a lone gold fund and finally United States Natural Gas (UNG). The seemingly endless flow of crude oil into the Gulf of Mexico may have aided UNG’s move from last month’s Laggard list to this month’s Leaders list. It undoubtedly played a role in the arrival of five oil related funds into this month’s 1-Month Laggard list. Budgets around the globe are stretched to the limit and natural gas is apparently the next-best economic substitute for crude oil. This is clearly where investors are placing their bets as there are four alternative energy funds on the 1-Month Laggard list.
May’s trading volume was nearly double that of April’s. Traders and investors took a sell-first-and-ask-questions-later approach to dealing with the myriad of issues that confronted the market in May. The May 6 “Flash Crash” only compounded problems and sent volatility soaring. With VIX on the rise throughout much of the month, four leveraged funds appear on the Most Active list. Direxion Financial Bear 3x (FAZ) traded nearly 100 million shares per day on average throughout May. This is approximately 25% higher than PowerShares QQQ (QQQQ) traded in April.
The number of new 52-week lows in May was actually lower than in April. This was primarily due to gains logged by Bear/Short funds. However, what is bearish is the increase in new lows that were not a Bear/Short fund and have been trading for at least one year. There were 20 in May compared to just two in April. Numerous alternative energy funds, a few currency funds and United States Natural Gas (UNG) made new lows in May. PowerShares DB Agriculture (DBA) appearing on this list is troubling. DBA broadly represents the agricultural commodity space. Declining food prices are good for CPI measurements and the consumer, but not for the farmers and companies that produce them.
Disclosure Note: At press time, officers of the Hirsch Organization held positions in FAN, FCG, IEF, NLR, PBW, TAN, XES and XLE.
