donderdag 12 juni 2014

Smart Money Flow Index Vs. Dow Jones

A very helpful index to predict what the Dow Jones is going to do is the Smart Money Flow Index. Just follow the smart money and the Dow Jones will correct itself to the smart money index. The only problem I have is that this SMFI index is not free of charge...

Smart Money Flow Index

The Smart Money Flow Index (SMFI) has long been one of the best kept secrets of Wall Street. Everybody knows the importance of a closing price and other last hour indicators like the Closing Tick, which we publish daily on our portal.
The Smart Money Flow Index is therefore calculated according to a special formula by taking the action of the Dow in two time periods: the first 30 minutes and the last hour. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way.

These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. It is a clear buy signal if the Dow falls to a new low which is not confirmed by the SMFI. But whenever the Dow makes a high which is not confirmed by the SMFI there is trouble ahead (Chart below). Watching this indicator is like being on a plane and see the pilots jumping off with parachutes. This magnificent indicator has called every major top and bottom.

Another index is the SMI index. The basic formula for SMI is:

Today's SMI reading = yesterday's SMI – opening gain or loss + last hour change

For example, the SMI closed yesterday at 10000. During the first 30 minutes of today's trading, the DJIA has gained a total of 100 points. During the final hour, the DJIA has lost 80 points. So, today's SMI is 10000 – 100 + -80 = 9820.

So basically, when you see people buy at the opening and sell into the close, you should become bearish.

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