Sell in May and Stay Away? Investment strategy - two funds to help execute on this play

Re-enter the dragon
Commentary: Sell in May and stay away? You bet!
By Jim Lowell, MarketWatch
Last Update: 5:36 AM ET May 1, 2007


WATERTOWN, Mass. (MarketWatch) -- Last year at this time and place I put forward a strategy based on the old saw: "Sell in May and stay away." Since that time, the markets at home and abroad have done little more than roll to higher highs, rendering May, 2006 through November, 2006, an anomalously good patch for sowing and harvesting gains.
Still, as the numbers below reveal, this strategy has panned out well in the past, and even fared well enough over the last 12 months, making it a natural pitch in our arsenal of fast balls, sinkers, and sliders.
Moreover, while the ball park remains the same the field has changed. Thanks to nuanced spins, not outright sea changes, the economic landscape and calendar of concerns makes hitting singles, let alone home runs, harder to do.

There's no doubt that the U.S. economy is still growing, but unlike last year's first quarter, wherein our economy grew at its fastest rate in nearly three years, this time around it's different.
Depending upon whom you most listen to, our economy is either slowing to a crawl, or crawling before it walks -- but no one disputes the measurable fact that it has slowed considerably over the past 12 months. There's also no doubt that the global economy is growing like gangbusters. At the end of April, just like they did in April last year, China's central bank announced a modest but symbolic rate hike designed to help manage their economy's combustible growth.
Like last year at this time, I find the overall economic and earnings facts on the ground belie a better fundamental picture of the markets at home and abroad than one might imagine.
And while I don't think we've reached the peak of the markets here, just a peak in an ascending range of where the market will end up for the year, there's reason enough to want to hunker down here for traders (as distinct from investors) who aren't concerned about taking gains or looking much beyond the next four weeks or few months of market activity. Why? Simple: It's May.
Re-enter the dragon
While most adages have some grounding in reality, this Sell in May saw has investment teeth. The adage and all studies focus on the large-cap group of stocks found in the Standard & Poor's 500 Index SPX what happens if you sold whatever S&P 500 device suits yours fancy (i.e., an index fund or an ETF like the SPDR Trust (SPY at the end of April and stayed away until the beginning of November, and then bought back again and hung on through the end of the next April, ad infinitum. The result of doing so: over the past 6 years, you would have made 35.0% vs. 27.2% for those that bought and held throughout the time period. (Note: the trend holds up for mid-cap and small-cap stocks, too.)
That 35% return isn't bad; Not bad at all, you say. However, what if you didn't just take the field for one seasonal sprint and then sit on the sidelines the next, but instead purchased an inverse index fund or, better yet, Profunds Ultra Bear fund (URPIX : ProFunds:UltraBear;) in May, sold it in October, and bought the Profunds Ultra Bull (ULPIX : ProFunds:UltraBull) in November and held through April? You'd have made 44.0% vs. the 27.2% buy and hold index huggers, and the 35.0% made by those traitorous trading indexers making both camps look like they're money's doing nothin' more than pushin' up daisies. Nice!

Enter the trade
While I am a firm believer in, and advocate of another maxim -- time in the markets, not market timing -- I know a good trade when I see one. This sure looks like that trade -- so long as you're a trader, and not an investor.