Smart Money/Dumb Money Confidence

I’ve mentioned the excellent sentimenTrader service in the past.  At just $250 per year it’s a steal for high-level sentiment analysis.  Click here for a free trial.  Anyway, the sort of marquee offering of the service–I pressed Jason Goepfert, the man behind it, and he said it’s the one thing he’d take if he had to choose just one–is the Smart Money/Dumb Money Confidence indicator.

Here’s how the service describes it:

Recently, the spread between the smart money and dumb money indicators has been approaching levels last seen in March 2009.  Although it’s not there yet, it’s another example (see last week’s WR&O for others) of an oversold market.  Here’s a look at it, along with some of my annotations.  All three indicators, the Smart Money, the Dumb Money, and the difference betwixt the two are approaching March levels, although that won’t represent the extreme in any of them.  The signal is intermediate term in nature, good for moves of 1 – 3 months in duration.  Notice that the past extremes (red arrows) in the indicator didn’t mark major bottoms, but were good for little runs.  In the context of 1 – 3 months they were low-risk buys.

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