+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

The 'Smart Money' In The Stock Market Has Been Headed For The Exits Since May

Oct 2, 2013, 02:54 IST

Business Insider/Matthew Boesler, data from Bloomberg

The "Smart Money Flow Index" has been headed lower since May, even though the stock market has continued to make new all-time highs since then.

Advertisement

What is the SMFI? A description of the indicator from Bloomberg:

The Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the first 20 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way. These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. To replicate this index, just start at any given day, subtract the price of the Dow at 10 AM from the previous day's close and add today's closing price. Whenever the Dow makes a high which is not confirmed by the SMFI there is trouble ahead.

The Dow Jones Industrial Average has made three new all-time highs this summer. The first one came in May, the second one in August, and the the third in September.

However, those new highs haven't been confirmed by the Smart Money Flow Index, which has been trending lower since the first new high made by the Dow in May.

Advertisement

In September, when the Dow made its third new all-time high, the SMFI was able to rise above its previous peak at the August high on the Dow - so there is no clear trend of "lower highs" in the SMFI as the Dow makes "higher highs."

Still, the SMFI indicator suggests that a lot of the buying has been happening in the first 30 minutes of trading.

You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article