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In the book "Street Smarts" Linda Raschke discusses her approach to using
the Smart Money Index that appeared in Barrons Feb 8, 1988. That SMI
premise was that dumb money dominated the first hour and smart money
dominated the last hour. A later revision was to use the first half hour as
representing the dumb money and the smart money faded that in the second
half hour and the final hour. Perhaps that is because of the speed of
transactions now. The attached chart uses the first half hour as DM and the
last hour as SM. The net price change in the first half hour is multiplied
by -1 and then added to the net change in the last hour. That is the daily
value. The SMI is then made from a running total of the daily values. To
quote Linda, "You might want to look at the total summation index for
historical purposes, but the only number that I use is the individual day's
reading at the close. If the day's SUM reading is less than 20, look to be
a seller the next day. High readings usually accompany significant
intermediate term reversals in the stock market. On average, four to five
signals will be given per month. pp "It really pays to be conscious of how
a market trades in the last hour. Again, if you are long and the market
closes firm, carry your position overnight. There are overwhelming odds
that the market will follow-through the next morning. Also, be especially
on guard against making emotional mistakes in the first hour of trading.
This applies not only to the S&P's but to all markets. You don't want to
get trapped by an early morning reversal."
Given the above, what is the status as of Friday June 8th? Ans: The daily
value closed at +44.7. The Summation Index closed above the 21 hour which
closed above the 50 hr which closed above the 200 hr. In looking back over
a few years of data the SMI has a long lead time divergence over price. At
the moment it is not indicating a Sell, but rather continued smart money
buying according to the definition.
bobr
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Attachment:
Description: "SMDM.GIF"
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