Sell in May and Go Away – Views Since 2002

May 26, 2008: 11:10 AM CST

We’ve heard the market adage:  “Sell in May and Go Away!” but does it really work?  Historically, the market has performed better from the October – May period than it has from May to October, but I wanted to show you the last few years starting with 2002 and conduct visual inspection of this strategy.

Success is based on Index price being higher in May than in October.

Let’s start in 2002: – YES, the strategy worked perfectly

2003: NO, the strategy failed

2004: YES, the strategy worked (though not perfectly)

2005: NO, the strategy failed

2006: NO. However, May registered the annual high before falling 8%, but the bottom occurred in July, not October.

2007:  NO – However, The high (before October) occurred in July, keeping you out of the mid-year decline, but you would have lost money buying in October.

Based on this lookback to 2002, prices were higher in May and lower in October 2 out of 6 years.

Interestingly enough, if we change October to September, then the strategy worked 4 out of 6 years.

In every year observed except 2003 and 2005, there was some sort of turbulent move to the downside during the summer months, and selling in May would have prevented this downside move in the Index.

This is an unscientific observation, and is mainly created to inspect visual performance of the S&P 500 index over these years with a special emphasis on the time period between May and October.

Whether or not ‘selling in May, 2008’ will be beneficial is yet to be seen, but we’ve already had a large volatility move to the downside earlier this year and we could still have more should the economy continue to slide.

Nevertheless, the tendency for the market to perform poorer during the summer is interesting to review and does have historical precedent (see CNN Money article “Sell in May and Go Away” and many other sources).

According to the article, “Over the past 50 years, from the end of October to the end of May the S&P 500 index has gained a cumulative 2,806 percent (7% per year)…. Now, what would happen if you bought in May and sold at the end of October? The S&P 500’s cumulative gain over that period for the past 50 years is 24 percent (0.4% per year).

2 Comments

2 Responses to “Sell in May and Go Away – Views Since 2002”

  1. Borogol Says:

    seems conflicting but stock trading myths as of 2012 tells that, it is wise to check with market sentiments, few issues..

  2. Girish Says:

    It’s a really interesting point but can be wrong so we have to extremely careful we don’t bet our house on it. Forex market is known for creating new trends and records, therefore it is very important that we keep that in mind before taking any decision. I love to trade with OctaFX broker and they have arguably the best conditions like low spread of just 0.2 pips, high leverage up to 1.500 and many benefits so whatever we do buy or sell is profitable for us!