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Robert Burgess

Don’t Buy the Stock Rally? The Smart Money Does

The latest trading patterns suggest that the nasty selloff in the first half of the year may be over.

The smart money is on a buying spree.

The smart money is on a buying spree.

Photographer: Spencer Platt/Getty Images 

Just like old times. That’s what it must seem like with the S&P 500 Index up about 15% since mid-June and poised for its fourth consecutive weekly gain, its longest winning streak of the year. Those who question the durability of this rally, given the slowdown in the economy and a Federal Reserve that has doubled down on its plan to keep raising interest rates, can take comfort in one key metric: the smart money.

That can be seen in the Smart Money Flow Index, which measures action in the narrower Dow Jones Industrial Average during the first half-hour and the last hour of trading. The thinking is that the first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news as well as a lot of buying on market orders and short covering. The “smart money” institutional investors, though, wait until the end of trading to place big bets when there is less “noise.”