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Todd Harrison: Revisiting the Smart Money

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The largest divergence since 2007 remains in play.

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I return from a respite with my family to find the markets higher than they were a week ago. 

In fact, the all-important S&P (INDEXSP:.INX) 1850 level is again underfoot despite non-confirmation from the banks (below BKX (INDEXSP:BKX) 71.50), tech (under NDX (INDEXNASDAQ:NDX) 3640),and the small caps (beneath RUT (INDEXRUSSELL:RUT) 1182).

Only the transports (above TRAN (INDEXDJX:DJT) 7600) are supportive of a continuation of the holiday-thinned rally, at least through the lens of the sub-sector price action. The biotech complex, for its part, broke the 200-day (IBB (NASDAQ:IBB) 220) but is marginally above it as of this post.

Before I unplugged last week, I wrote The SMART Money Strikes Again to highlight the divergence that had preceded the previous downdraft. 
The following description of the Smart Money Flow Index is from Bloomberg (paraphrased):

The Smart Money Flow Index (SMFI) is calculated by taking the price of the Dow Jones Industrial Average (INDEXDJX:.DJI) at 10:00 a.m. on any given day, subtracting it from the previous day's close, and adding it to the next day's closing price. The first 30 minutes represent "emotional buying," driven by greed and fear of the crowd; smart money typically waits until the end of the day.  If/when the DJIA makes a new high that is not confirmed by the SMFI, there is usually trouble ahead.

In an effort to remain consistent in our approach, I've updated those charts below. 

You will notice that we are still at levels last seen in 2007, which may prove to be a false tell but should, at the very least, be considered when making financial decisions.




 
R.P.

Twitter: @todd_harrison

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