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 Date	Entry Price	Exit Date	Exit Price	% Change
4-May-88	972.70	4-Oct-88	1005.30	3.35
3-May-89	1284.90	3-Oct-89	1388.30	8.05
3-May-90	1465.90	2-Oct-90	1137.20	-22.42
3-May-91	1546.00	3-Oct-91	1359.40	-12.07
5-May-92	1488.70	2-Oct-92	1352.20	-9.17
4-May-93	1790.90	4-Oct-93	2018.10	12.69
4-May-94	2310.60	4-Oct-94	2348.50	1.64
3-May-95	2072.10	3-Oct-95	2120.20	2.32
3-May-96	2404.50	2-Oct-96	2172.00	-9.67
5-May-97	2020.40	2-Oct-97	1945.00	-3.73
5-May-98	1476.40	2-Oct-98	913.57	-38.12
4-May-99	1915.49	4-Oct-99	2056.10	7.34
3-May-00	2162.23	3-Oct-00	1956.15	-9.53
3-May-01	1747.53	2-Oct-01	1329.63	-23.91
3-May-02	1737.75	2-Oct-02	1378.34	-20.68
5-May-03	1310.74	2-Oct-03	1647.74	25.71
4-May-04	1838.53	4-Oct-04	2001.18	8.85
4-May-05	2141.86	4-Oct-05	2305.63	7.65
3-May-06	2643.14	3-Oct-06	2593.59	-1.87
3-May-07	3444.66	2-Oct-07	3826.41	11.08
2-May-08	3147.79	2-Oct-08	2358.91	-25.06
4-May-09	1920.28	2-Oct-09	2657.44	38.39
				-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.

STI Statistics

Dow was down 313 points on Friday to close at 8378. The big plunge that was supposed to take place based on activity in the futures market did not happen. Dow futures plunged 550 points on Friday morning, triggering a temporary trading halt. A 313 points (3.6 percent) drop is therefore something that no one expected.

In Asia markets, Singapore STI drop 8.33%, Japan Nikkei drop 9.6%, Hong Kong Hang Seng drop 8.3%, South Korea drop 10.57%, Shanghai drop 1.92% and India drop 10.96%.
So the drop in US is mild considering what happened in Asia.

Looking at Singapore, STI has dropped 32% since the beginning of October. Let’s look at the index based on its performance from May to Oct and Oct to May period.

Based on records from 1988 till present, there was only 1 period where the index dropped more than 30% during the Oct to May period.

That happened during 1997 from Oct 97 to May 98. The lowest point during that period was 47% below the Oct 97 opening level. Following that decline, the index dropped by another 37% from May 98 to Oct 98.

Will we see another double digit percentage drop from Oct 08 to May 09? Based on the records that I am looking at, the chances of that happening is slim. STI have dropped 15% from Oct 07 to May 08 and another 25% from May 08 to Oct 08. The record shows that there was never a consecutive 3 periods of double digit percentage drop in the index. And when consecutive 2 periods of double digit percentage drop occurred, the next period was a rally. That occurred in 1998 (101% rally) and 2001 (30% rally). And both of these rallies stated in October.

STI June Performance

This is the performance of STI in June from 1988 onwards.

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Draw Down %	Max Gain %	Bars Held
6/1/1988	1006	6/30/1988	1093	8.62	0.00	8.62	18
6/1/1989	1279	6/30/1989	1308	2.23	-5.64	2.82	21
6/1/1990	1556	6/29/1990	1527	-1.85	-2.13	0.79	20
6/3/1991	1566	6/28/1991	1490	-4.84	-4.84	0.00	17
6/1/1992	1511	6/30/1992	1481	-1.95	-2.27	0.81	20
6/2/1993	1895	6/30/1993	1803	-4.88	-9.14	0.27	20
6/1/1994	2280	6/30/1994	2225	-2.43	-3.65	1.29	21
6/1/1995	2180	6/30/1995	2093	-3.97	-5.35	1.80	21
6/3/1996	2332	6/28/1996	2296	-1.55	-2.78	0.65	18
6/2/1997	2065	6/30/1997	1988	-3.74	-4.68	0.07	20
6/1/1998	1254	6/30/1998	1067	-14.94	-17.74	0.00	21
6/1/1999	1910	6/30/1999	2168	13.49	-0.37	15.88	21
6/1/2000	1810	6/30/2000	2038	12.61	-0.04	15.72	21
6/1/2001	1663	6/29/2001	1727	3.79	-1.08	3.79	20
6/3/2002	1677	6/28/2002	1553	-7.38	-9.34	0.27	19
6/2/2003	1367	6/30/2003	1448	5.92	-0.13	11.43	20
6/1/2004	1787	6/30/2004	1838	2.83	-1.13	3.22	20
6/1/2005	2169	6/30/2005	2213	1.99	-0.08	2.82	21
6/1/2006	2394	6/30/2006	2435	1.71	-4.86	2.17	21
6/1/2007	3548	6/29/2007	3548	0.02	-1.89	2.94	20

Out of 20 June months, we have 10 winners and 10 losers. Interestingly from 2000 onwards, STI performed quite ok in June except for 2002 where it was down 7%.

STI April Statistics

We are coming to end of Mar. Based on historical data for the STI index, performance of STI in Mar has not been spectacular.

You have a 50-50% chance of market ending up in Mar.

What is the likelihood of market going up in Apr?

A total of 13 profitable "Apr" months so far. A much better performance than "Mar" months.