Is The “Smart-Money” Correct?

Since the S&P 500 began its rally in late October the “Smart Money Index” (SMI) has moved steadily lower as the index rose (chart below). It is called the “smart money index” because sophisticated investors tend to trade primarily in the afternoon rather than the morning. Thus, a weakening market on the close suggests that the “smart money” is selling.

The steady decline in the SMI suggests that “smart money” has been selling this rally. Of course, even the smartest investors can be wrong so the SMI should not be used in isolation.

However, the trend in the SMI combined with a variety of indications suggesting that investor sentiment is currently extremely optimistic suggests that caution is warranted.

If you enjoyed this post, you’ll find the Global Investment Letter of value. We invite you to visit our website, which includes complimentary sample issues. www.globalinvestmentletter.com