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.

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.


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