Saturday, December 5, 2009

Not A Good Day For The Smart Money Indicator

By Bespoke Investor Group | 5 December 2009

The smart money indicator is an old market indicator based on the premise that the emotional investors buy or sell in the morning on the latest headlines, while the so-called smart money waits for the dust to settle and trades later in the day towards the close. Using this indicator, it's a bullish environment when we see weakness in the morning (emotional money selling) and strength at the end of the day (smart money buying).

According to the smart money indicator, it doesn't get much uglier than Thursday. As the intraday chart below illustrates, the S&P 500 was strongest in the morning (when the emotional traders were buying) and weakest in the last hour of the day (when the smart money was selling). In a report sent out to clients earlier, we noted that this trend has played out in each of the three trading days so far this month. It's only three days, but the longer this trend continues, the more important the divergence becomes.

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