Udayan talked about this strategy on CNBC-TV18 : "sell in May, Go away", and, come back in November. I took a a close look at the "Sell in May, Go Away" strategy that Wall Street usually advises this time of year.
The strategy is:
Sell in May. Come back in November to buy. To computerize this, the rules have to be defined. I have changed the rules to determine the results of buying in may and exiting in Ocotber, and, buying in November and exiting in April. The rules are:
Test data: NSE50 Index from July 1990 to April 2009.
Buy on the last trading day in April
Cover the long position on the last trading day in October.
Number of Years: 18
Winning Years: 10 (91,93,94,95,97,99,2003,2005,2006,2007)
Losing years: 8
Net Gain: + 319 points
Buy on the last trading day in October.
Cover the long position on the last trading day in April.
Number of Years: 19
Winning Years: 13
Losing years: 6 (90-91, 92-93, 94-95, 2000-2001, 2002-2003, 2007-2008)
Net Gain: +2750 points
While buying in both time spans make money, The Buy in Ocotber, sell in April seems to be a viable strategy.
The message is: the period May to October is likely to be choppy, difficult for the markets, based on historical data.