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25 years experience in Quant research, portfolio management, and stock market data analytics. 15 years experience in index trading / ETF strategist. Mean revision / time series studies applied towards general market trends with a focus on long term format.
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  • Market Map Model 1 With "Sell In May" 0 comments
    Oct 17, 2013 1:46 PM

    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 MaySell in May% return$1 becomes
    entry dateexit dateUsing 
      S&P 500 
       $1
    11/14/5005/10/5112.9%1.1
    11/13/5104/05/525.3%1.2
    10/31/5204/30/530.4%1.2
    10/23/5305/14/5418.3%1.4
    11/05/5404/29/5516.1%1.6
    10/21/5504/09/5614.1%1.9
    10/08/5605/09/57-0.2%1.9
    10/29/5705/16/586.6%2.0
    10/06/5805/05/5914.0%2.3
    10/06/5904/22/60-2.9%2.2
    10/07/6004/21/6121.7%2.7
    10/09/6104/23/620.9%2.7
    10/10/6205/01/6322.2%3.3
    10/18/6304/14/649.1%3.6
    11/09/6405/19/655.3%3.8
    10/26/6505/02/66-1.4%3.7
    10/17/6605/12/6720.7%4.5
    11/21/6705/08/686.2%4.8
    10/14/6805/21/691.1%4.8
    10/16/6904/15/70-10.0%4.4
    11/06/7005/03/7122.6%5.4
    11/29/7104/24/7215.8%6.2
    10/25/7204/26/73-1.7%6.1
    12/11/7304/26/74-6.1%5.7
    10/10/7405/01/7523.8%7.1
    10/17/7505/05/7613.5%8.0
    10/28/7604/27/77-3.6%7.8
    10/31/7705/09/783.9%8.1
    11/14/7804/17/799.5%8.8
    11/05/7906/20/8012.0%10
    10/10/8005/01/811.9%10
    10/14/8105/04/82-1.1%10
    10/08/8205/13/8325.8%13
    10/21/8305/11/84-4.5%12
    10/17/8405/01/858.7%13
    10/04/8504/25/8632.6%17
    10/06/8604/13/8721.7%21
    11/04/8705/10/883.5%22
    10/12/8805/08/8911.7%24
    11/14/8904/20/90-0.8%24
    10/22/9004/26/9120.4%29
    10/17/9105/11/926.8%31
    10/21/9204/26/934.3%32
    10/07/9306/13/940.0%32
    10/17/9405/23/9512.7%36
    10/23/9504/17/969.7%40
    10/17/9605/27/9720.2%48
    11/18/9704/24/9818.1%56
    10/13/9805/13/9937.5%78
    10/20/9904/13/0011.7%87
    10/23/0005/11/01-10.8%77
    10/02/0104/01/029.1%84
    10/02/0204/10/035.3%89
    10/03/0304/20/048.6%96
    10/01/0404/01/053.7%100
    10/19/0504/03/068.5%109
    10/02/0605/10/0712.0%122
    10/01/0704/14/08-14.1%104
    10/20/0804/22/09-14.4%89
    10/09/0904/08/1010.7%99
    11/04/1004/13/117.6%107
    10/06/1104/03/1221.3%129
    11/06/1204/01/1310.8%143
        

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

    table 2

        
      % return using$1 becomes
    entry dateexit dateS&P 500 
       $1
    11/14/5004/30/5323.5%1
    10/23/5305/09/5790.4%2
    10/29/5704/22/6036.2%3
    10/07/6004/23/6226.8%4
    10/10/6204/15/7051.5%6
    11/06/7004/26/7329.3%8
    12/11/7304/26/74-6.1%7
    10/10/7404/27/7737.7%10
    10/31/7705/04/8227.2%13
    10/08/8205/11/8420.9%16
    10/17/8405/10/8857.0%25
    10/12/8804/20/9022.3%30
    10/22/9006/13/9445.9%44
    10/17/9405/11/01165.6%118
    10/02/0104/10/03-17.1%98
    10/03/0304/14/0829.0%126
    10/20/0804/22/09-14.4%108
    10/09/09pending May 201458.7%171
        

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

    table 3

        
      % return using$1 becomes
    entry dateexit dateS&P 500 
       $1
    05/01/5005/01/5335.71%1.4
    11/02/5305/01/5697.60%2.7
    11/01/5605/01/57-1.08%2.7
    11/01/5705/02/6033.78%3.5
    11/01/6005/01/6221.89%4.3
    11/01/6205/03/6556.22%6.8
    11/01/6505/02/66-1.41%6.7
    11/01/6605/01/6821.29%8.1
    11/01/6805/01/690.49%8.1
    11/03/6905/01/70-16.17%6.8
    11/02/7005/01/7328.26%8.7
    11/01/7305/01/74-14.39%7.5
    11/01/7405/02/7734.01%10
    10/31/7705/01/785.82%11
    11/01/7805/01/8137.11%15
    11/02/8105/03/82-5.96%14
    11/01/8205/01/8419.34%16
    11/01/8405/01/8771.94%28
    11/02/8705/01/9029.92%36
    11/01/9005/01/9234.36%49
    11/02/9205/01/9788.90%92
    11/02/9705/01/9819.38%110
    11/02/9805/01/9920.16%133
    11/01/9905/01/008.42%144
    11/01/0005/01/01-10.91%128
    11/01/0105/01/020.18%111
    11/01/0205/01/0856.38%207
    11/03/0805/03/1024.43%258
    11/01/1005/02/1114.95%297
    11/01/11pending May 201439.57%414
        

    Statistics:

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

    Using MACD

    Using MACD 
    # dividends excluded   
        
    CAGR8.3%8.6%10.2%
        
    SP points captured201320632630
    SP cum % during invest549%684.0%750.2%
    SP cum % during cash-5.4%-52.5%-131%
        
    # trades1273659
        
    Max drawdown   
    2008-2009-31.4%-31.4%

    -30.0%

        
    $1 becomes141171414
        

    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 dateexit date% return$1 becomes
      Using 
      S&P 500 
       1
    04/22/5004/30/5337.1%1
    10/23/5305/01/5699.6%3
    10/08/5605/09/57-0.2%3
    10/29/5704/22/6036.2%4
    10/07/6004/21/6121.7%5
    10/10/6205/19/6556.7%7
    10/26/6505/02/66-1.4%7
    10/17/6605/08/6827.7%9
    10/14/6805/21/691.1%9
    10/16/6904/15/70-10.0%8
    11/06/7004/26/7329.3%11
    12/11/7304/26/74-6.1%10
    10/10/7404/27/7737.7%14
    10/31/7705/09/783.9%14
    11/14/7805/01/8143.5%20
    10/14/8105/04/82-1.1%20
    10/08/8205/11/8420.9%24
    10/17/8404/13/8774.0%42
    11/04/8704/20/9034.6%57
    10/22/9005/11/9233.0%75
    10/21/9205/27/97104.4%154
    11/18/9704/24/9818.1%182
    10/13/9805/13/9937.5%250
    10/20/9904/13/0011.7%280
    10/23/0005/11/01-10.8%250
    10/02/0104/01/029.1%272
    10/02/0204/14/0860.4%437
    10/20/0804/08/1020.4%526
    11/04/1004/13/117.6%566
    10/06/11open47.0%832
        

    Statistics:

      
    "Sell in May" + Market Map model 
    using MACD 
      
    1950 - 2013 
    # dividends excluded 
    CAGR11.4%
    SP points captured2930
    SP cum % during invest843%
    SP cum % during cash-186.0%
      
    # trades59
      
    Max drawdown2008-2009
     -31.4%
    $1 becomes826
      

    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

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