What’s Behind The Rapid Plunge In The ‘Smart Money Index’?

Much has been made of the plunge in the Smart Money Indexthis year and for good reason. In the past, major downturns in the index like we are witnessing today have proved to be prelude to major downturns in stock prices. Many have wondered about the underlying dynamics for the decline in the index of late and I think it may be fairly easy to explain.

The index simply represents the difference between the first 30 minutes of trading and the last hour. The idea here is that novice traders trade the open and more experienced traders trade the close. The difference reflects the net trading of these ‘smarter’ traders.