Friday, July 18, 2014

Another Interesting Chart -- the Smart Money Index

Here's another interesting chart to ponder over the weekend.

The smart money index (SMI) or smart money flow index is a technical analysis indicator demonstrating investors' sentiment. The index was invented d by money manager Don Hays, and is based on intra-day price patterns.

The main idea is that the majority of traders (who are emotional and news-driven) overreact at the beginning of the trading day because of the overnight news and economic data. There is also a lot of buying on market orders and short covering at the opening. Smart, experienced investors start trading closer to the end of the day having the opportunity to evaluate market performance.

What this indicator is telling us is that the smart money is turning more bullish.

To be sure, there are as many indicators for the market as there are leaves on a large tree. Some work sometimes, others work other times. And many, many smart people have been telling us that now is the time to get bearish.

But I've often heard the phrase "watch what the big money does, not what it says." 

Maybe that applies here.

Anyway, something to consider over this summer weekend.

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