Monday, April 26, 2010

Sell In May And Go Away

The stock market has a famous saying of “Sell in May and go away”. Should you be doing it this year?

A look at the STI index from 1988 to 2010 shows that there is a 50-50 chance that the market will go down from May to Oct. The performance of the STI index is shown in the table below


Entry DateEntry PriceExit DateExit Price% Change
4-May-88972.704-Oct-881005.303.35
3-May-891284.903-Oct-891388.308.05
3-May-901465.902-Oct-901137.20-22.42
3-May-911546.003-Oct-911359.40-12.07
5-May-921488.702-Oct-921352.20-9.17
4-May-931790.904-Oct-932018.1012.69
4-May-942310.604-Oct-942348.501.64
3-May-952072.103-Oct-952120.202.32
3-May-962404.502-Oct-962172.00-9.67
5-May-972020.402-Oct-971945.00-3.73
5-May-981476.402-Oct-98913.57-38.12
4-May-991915.494-Oct-992056.107.34
3-May-002162.233-Oct-001956.15-9.53
3-May-011747.532-Oct-011329.63-23.91
3-May-021737.752-Oct-021378.34-20.68
5-May-031310.742-Oct-031647.7425.71
4-May-041838.534-Oct-042001.188.85
4-May-052141.864-Oct-052305.637.65
3-May-062643.143-Oct-062593.59-1.87
3-May-073444.662-Oct-073826.4111.08
2-May-083147.792-Oct-082358.91-25.06
4-May-091920.282-Oct-092657.4438.39
-49.16

If you buy into the STI on May 2009 and sell on Oct 2009 instead, you would have seen gains of 38%. However if you sum up the performance from 1988 to 2010, you will be down 49%.

So should you be a buyer this May or seller? Personally, I will not be a buyer as my feel is the index will not see double digit percentage gain and the risk of a correction is high.

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