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Market Map Model 1 With "Sell In May"

The "Sell in May and Go Away" strategy, which entails the investor selling his or her stock holdings or index funds on the first trading day of May and entering back into the equity market on the first trading day of November (thus avoiding the "underperformance" of stocks vs. cash in the six-month period commencing in May and ending in October), has been a popular yet controversial strategy over the years. We commend the SIM strategy for employing a simple non-subjective empirical approach in its calculation and for using "fixed" dates for asset allocation changes, similar to the Market Map model.

This article examines the results of a study that we conducted which integrates the basics of Market Map model 1 with the simple version of the SIM strategy. For performance comparison, the study also utilized the more advanced version* of the SIM strategy, which involves the use of the MACD signalling (moving average convergence-divergence indicator) to gain price improvement on entries and exits leading to overall performance increase.

For this study, we employ the "Risk" profiles that we presented in the previous article seekingalpha.com/article/1738582-market-map-model-1-risk-profiles, with the rule set as follows: allocate assets towards the S&P500 on the first trading day in November and stay invested through the May-October period during years that fit the "Favorable Risk" profile. During years that fall in the "Favorable First 6 month", "Neutral Risk", or "High Risk" profiles, exit the S&P500 and allocate assets to cash on the first trading day in May and allocate assets towards the S&P500 on the first trading day of the upcoming November.

For comparison, we also combined the SIM strategy with the 10 month simple moving average strategy conceived by Mebane Faber. The rule set for this strategy as follows: allocate assets towards the S&P500 when the MACD entry signal is triggered (usually occurring somewhere Oct-Dec). If, when the normal April-May-June MACD exit signal is triggered and the month end price of the S&P500 is greater than it's 10 month simple moving average, stay invested through the Apr/May/June through Oct/Nov/Dec period. Otherwise, allocate assets to cash (the month end price of the S&P500 index is below it's 10 mo. SMA).

The historical results and comparisons are shown in the tables below.

# Results shown below exclude dividends and interest during cash periods

"Sell in May" Strategy: Entry and Exit Dates Using MACD

table 1

       
Sell in May Sell in May % return $1 becomes
entry date exit date Using  
    S&P 500  
      $1
11/14/50 05/10/51 12.9% 1.1
11/13/51 04/05/52 5.3% 1.2
10/31/52 04/30/53 0.4% 1.2
10/23/53 05/14/54 18.3% 1.4
11/05/54 04/29/55 16.1% 1.6
10/21/55 04/09/56 14.1% 1.9
10/08/56 05/09/57 -0.2% 1.9
10/29/57 05/16/58 6.6% 2.0
10/06/58 05/05/59 14.0% 2.3
10/06/59 04/22/60 -2.9% 2.2
10/07/60 04/21/61 21.7% 2.7
10/09/61 04/23/62 0.9% 2.7
10/10/62 05/01/63 22.2% 3.3
10/18/63 04/14/64 9.1% 3.6
11/09/64 05/19/65 5.3% 3.8
10/26/65 05/02/66 -1.4% 3.7
10/17/66 05/12/67 20.7% 4.5
11/21/67 05/08/68 6.2% 4.8
10/14/68 05/21/69 1.1% 4.8
10/16/69 04/15/70 -10.0% 4.4
11/06/70 05/03/71 22.6% 5.4
11/29/71 04/24/72 15.8% 6.2
10/25/72 04/26/73 -1.7% 6.1
12/11/73 04/26/74 -6.1% 5.7
10/10/74 05/01/75 23.8% 7.1
10/17/75 05/05/76 13.5% 8.0
10/28/76 04/27/77 -3.6% 7.8
10/31/77 05/09/78 3.9% 8.1
11/14/78 04/17/79 9.5% 8.8
11/05/79 06/20/80 12.0% 10
10/10/80 05/01/81 1.9% 10
10/14/81 05/04/82 -1.1% 10
10/08/82 05/13/83 25.8% 13
10/21/83 05/11/84 -4.5% 12
10/17/84 05/01/85 8.7% 13
10/04/85 04/25/86 32.6% 17
10/06/86 04/13/87 21.7% 21
11/04/87 05/10/88 3.5% 22
10/12/88 05/08/89 11.7% 24
11/14/89 04/20/90 -0.8% 24
10/22/90 04/26/91 20.4% 29
10/17/91 05/11/92 6.8% 31
10/21/92 04/26/93 4.3% 32
10/07/93 06/13/94 0.0% 32
10/17/94 05/23/95 12.7% 36
10/23/95 04/17/96 9.7% 40
10/17/96 05/27/97 20.2% 48
11/18/97 04/24/98 18.1% 56
10/13/98 05/13/99 37.5% 78
10/20/99 04/13/00 11.7% 87
10/23/00 05/11/01 -10.8% 77
10/02/01 04/01/02 9.1% 84
10/02/02 04/10/03 5.3% 89
10/03/03 04/20/04 8.6% 96
10/01/04 04/01/05 3.7% 100
10/19/05 04/03/06 8.5% 109
10/02/06 05/10/07 12.0% 122
10/01/07 04/14/08 -14.1% 104
10/20/08 04/22/09 -14.4% 89
10/09/09 04/08/10 10.7% 99
11/04/10 04/13/11 7.6% 107
10/06/11 04/03/12 21.3% 129
11/06/12 04/01/13 10.8% 143
       

"Sell in May" using MACD Combined with Faber 10 mo. SMA strategy

table 2

       
    % return using $1 becomes
entry date exit date S&P 500  
      $1
11/14/50 04/30/53 23.5% 1
10/23/53 05/09/57 90.4% 2
10/29/57 04/22/60 36.2% 3
10/07/60 04/23/62 26.8% 4
10/10/62 04/15/70 51.5% 6
11/06/70 04/26/73 29.3% 8
12/11/73 04/26/74 -6.1% 7
10/10/74 04/27/77 37.7% 10
10/31/77 05/04/82 27.2% 13
10/08/82 05/11/84 20.9% 16
10/17/84 05/10/88 57.0% 25
10/12/88 04/20/90 22.3% 30
10/22/90 06/13/94 45.9% 44
10/17/94 05/11/01 165.6% 118
10/02/01 04/10/03 -17.1% 98
10/03/03 04/14/08 29.0% 126
10/20/08 04/22/09 -14.4% 108
10/09/09 pending May 2014 58.7% 171
       

"Sell in May" Combined with Market Map Model 1 Risk Profiles

table 3

       
    % return using $1 becomes
entry date exit date S&P 500  
      $1
05/01/50 05/01/53 35.71% 1.4
11/02/53 05/01/56 97.60% 2.7
11/01/56 05/01/57 -1.08% 2.7
11/01/57 05/02/60 33.78% 3.5
11/01/60 05/01/62 21.89% 4.3
11/01/62 05/03/65 56.22% 6.8
11/01/65 05/02/66 -1.41% 6.7
11/01/66 05/01/68 21.29% 8.1
11/01/68 05/01/69 0.49% 8.1
11/03/69 05/01/70 -16.17% 6.8
11/02/70 05/01/73 28.26% 8.7
11/01/73 05/01/74 -14.39% 7.5
11/01/74 05/02/77 34.01% 10
10/31/77 05/01/78 5.82% 11
11/01/78 05/01/81 37.11% 15
11/02/81 05/03/82 -5.96% 14
11/01/82 05/01/84 19.34% 16
11/01/84 05/01/87 71.94% 28
11/02/87 05/01/90 29.92% 36
11/01/90 05/01/92 34.36% 49
11/02/92 05/01/97 88.90% 92
11/02/97 05/01/98 19.38% 110
11/02/98 05/01/99 20.16% 133
11/01/99 05/01/00 8.42% 144
11/01/00 05/01/01 -10.91% 128
11/01/01 05/01/02 0.18% 111
11/01/02 05/01/08 56.38% 207
11/03/08 05/03/10 24.43% 258
11/01/10 05/02/11 14.95% 297
11/01/11 pending May 2014 39.57% 414
       

Statistics:

       
"Sell in May" Advanced with 10 mo. with M Map
    SMA  
1950-2013

Using MACD

Using MACD  
# dividends excluded      
       
CAGR 8.3% 8.6% 10.2%
       
SP points captured 2013 2063 2630
SP cum % during invest 549% 684.0% 750.2%
SP cum % during cash -5.4% -52.5% -131%
       
# trades 127 36 59
       
Max drawdown      
2008-2009 -31.4% -31.4%

-30.0%

       
$1 becomes 141 171 414
       

As the tables reveal, our simple invention of combining the 10 mo. SMA crossover strategy with the SIM improved performance, trade frequency, and holding period length.

Combining Market Map model 1 Risk profiles with SIM further enhanced performance, albeit with a moderate increase in trade frequency.

"Sell in May" using MACD Combined with Market Map Model 1 Risk Profiles:

table 4

entry date exit date % return $1 becomes
    Using  
    S&P 500  
      1
04/22/50 04/30/53 37.1% 1
10/23/53 05/01/56 99.6% 3
10/08/56 05/09/57 -0.2% 3
10/29/57 04/22/60 36.2% 4
10/07/60 04/21/61 21.7% 5
10/10/62 05/19/65 56.7% 7
10/26/65 05/02/66 -1.4% 7
10/17/66 05/08/68 27.7% 9
10/14/68 05/21/69 1.1% 9
10/16/69 04/15/70 -10.0% 8
11/06/70 04/26/73 29.3% 11
12/11/73 04/26/74 -6.1% 10
10/10/74 04/27/77 37.7% 14
10/31/77 05/09/78 3.9% 14
11/14/78 05/01/81 43.5% 20
10/14/81 05/04/82 -1.1% 20
10/08/82 05/11/84 20.9% 24
10/17/84 04/13/87 74.0% 42
11/04/87 04/20/90 34.6% 57
10/22/90 05/11/92 33.0% 75
10/21/92 05/27/97 104.4% 154
11/18/97 04/24/98 18.1% 182
10/13/98 05/13/99 37.5% 250
10/20/99 04/13/00 11.7% 280
10/23/00 05/11/01 -10.8% 250
10/02/01 04/01/02 9.1% 272
10/02/02 04/14/08 60.4% 437
10/20/08 04/08/10 20.4% 526
11/04/10 04/13/11 7.6% 566
10/06/11 open 47.0% 832
       

Statistics:

   
"Sell in May" + Market Map model  
using MACD  
   
1950 - 2013  
# dividends excluded  
CAGR 11.4%
SP points captured 2930
SP cum % during invest 843%
SP cum % during cash -186.0%
   
# trades 59
   
Max drawdown 2008-2009
  -31.4%
$1 becomes 826
   

In an impressive manner, the MACD trigger adds meaningful value to the overall results.

Using the Market Map model in combination with the "Sell in May" strategy could be a viable option for anyone who has had allegiance to the "Sell in May" strategy.

* For a detailed description of the "Sell in May using MACD" strategy: www.stocktradersalmanac.com/sta/Sell-in-May-and-Go-Away.jsp