Did You Just Hear a Bell Ring?

As the saying goes, 'they don't ring a bell at the top, you know...' but if you listen closely and look for the signals, sometimes the signs are right under your nose. Regular readers will know I have been running a fully defensive position in the Active Asset Allocator given the record valuation of stocks and recent deterioration in market breadth. So, the following chart from the folks over at Crescat Capital certainly caught my attention. It highlights the record divergence between the US stock market and the Smart Money Flow Index (SMFI) and suggests that at least a correction is just around the corner.

 
SMFI.jpg
 
The SMFI measures the gap in price action in the first half hour compared to the prior day’s close, which is typically dominated by impulsive retail investors. That price action is then contrasted with the price action over the remainder of the trading day with most of the action and volume tending to unfold in the last hour of trading. There has been a record divergence of index performance in the first half hour compared to the rest of the day as shown by the SMFI indicator. Essentially what this shows is that retail investors have been buying while institutions have been selling. In and of itself this indicator is not very useful as it tends to trend in the same direction as the market. It becomes useful as a bullish or bearish indicator when it diverges from the market. That is the case now.
— Crescat Capital (www.crescat.net)

Buyer beware.

At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader  investment strategies, please get in touch at brian@secureinvestments.ie or 086 821 5911. If you are reading this via LinkedIn, why not visit Secure Investments and subscribe to get exclusive content for free. No spam, ever. Just great stuff.

Disclaimer

The information contained herein should not be taken as an offer of investment advice or encourage the purchase or sale of of any particular security or investment. It is provided for information purposes only. Secure Investments and its content providers makes no representation or warranty of any kind with respect to the services described, analysis or information obtained arising from use of the pages on this website. Information provided is obtained from sources deemed to be reliable and is provided solely on a best efforts basis. Secure Investments and its content providers do not guarantee the completeness or accuracy of such information and do not accept any liability for any loss or damage arising out of negligence or otherwise as a result of use or reliance on this information, whether authorised or not. The use of the website is at the user's sole risk. Not all recommendations are necessarily suitable for all investors and investment policy must be tailored to suit the circumstances of the individual. We recommend that readers consult their professional adviser before acting on any advice or recommendation on this website. The value of any investment may fall as well as rise and you may not recover the full amount originally invested. Past performance or simulated performance is no guarantee of future investment returns. The value of your investment may be subject to exchange rate fluctuations which may have a positive or adverse effect on the price or income or the securities.