subject: Sell in May and Go Away [print this page] The investment adage "Sell in May and Go Away" makes a lot of sense after we have seen Shanghai Index falling into bear market (investment definition stated anything below 20% from the high is bear market) for the first time in early May 2010. And at a longer term investment basis look at the history, it does make sense.
The performance of DJIA over 59-year period through 2009 shows the DJIA produced an average gain of 0.4% during the six-month periods from May to Oct (remember Summer), according to the 2010 Stock Trader's Almanac.
Over the same 59-years, DJIA averaged a +7.4% gain during the six-month periods from November through April (remember Winter).
See respective country below.
In actual dollar terms, $10,000 invested in the DJIA during each of the May-thru-Oct periods beginning in 1950 would have make you $474. However, on the different period on DJIA for Nov-thru-April (Winter) would make you a rich person... how much richer, very rich, you get back $534,348.
The editor of Stock Trader's Almanac. J.Hirsch said this is one of the most remarkable seasonal patterns in the stock market and it had a sell signal on 28 April 2010. The market may rally a bit further over the next several days or weeks, before any pullback occurs, Mr. Hirsch advises investors to use any strength to set up bearish position for the coming worst six months. ( use your trailing stops or any risk management that you had learned in our courses or books ).
Here are some statistics for you to think about:
1) Selling in May 2008 would have helped you to avoid -27.3% negative return in DJIA.
2) However, selling in May 2009 would mean missing the positive +19% return in the same index.
3) Following May 2009 for the next six months posted another +15.4% gain.
4) Selling stocks on May 3,2010 just a few days ago would helped you avoid a 1,000 pts plunge (i.e. if you have any position in the US stock market) on May 6, 2010 within a 25 mins span.
Declining stocks outnumbered advancers in the NYSE by more than 17-to-1. Trading vol was ultra high and VIX Index soared 50%.
Lesson learned: The stock market is full of market volatility, so maintain your proper temperament. Let other people overreact to the market. Keep your head cool when others do not, you will benefit greatly.
