I decided to go ahead with the 'End-First' of the month study.
Here's what i found out:
I looked at the SPX and RUT over the past 6 years. This a good period to look at, because it's been 3 years of Bear
('00-'03), and 3 years of Bull('03-'06).
Here's the strategy- BUY at the close of the 3rd to last day of the month (same as the Open of the next to last day
of the month for an index). Sell at the Close of the 2nd day of the following month. These are trading days,
of course, not calendar days. So, you're long for 4 days each month.
Over the 6 yr. period, trading the SPX by this strategy would have returned +35.2%, non-compounded. Buy and Hold
would have returned +2.4%.
The RUT did better, returning 69.2%, uncompounded- but Buy and Hold did nearly as well, giving you 68.7%
The real advantage to this strategy is found when you look at the Bear market portion of this period (4/00 to 4/03):
The strategy on the SPX would have returned +8.4%, whereas Buy and Hold returned -40% !! Net difference of +48.4%!
The RUT was similar for the bearish market period, with the 'end-first of the month' strategy yielding +21.1%,
whereas Buy and Hold gave you -23.9%, for a net difference of +45% !
The conclusion- This is a conservative strategy that worked very well in bear markets, but underperformed during
the bullish period. I may use this strategy for entry and exit on my retirement account, since I am limited to
long index funds trading at the close. |
