Smart Money Vs Dumb Money | Summary and Q&A

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March 8, 2019
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InvestingChannel
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Smart Money Vs Dumb Money

TL;DR

The stock market rally may not be as secure as it seems, as a chart comparing dumb money and smart money confidence shows a significant divergence.

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Questions & Answers

Q: What is the significance of the chart comparing dumb money and smart money confidence?

The chart shows that while retail investors have been extremely confident about the market rally, institutional traders and investors have not shared the same level of confidence. This could indicate a potential warning sign for the overall market.

Q: Does the divergence between dumb money and smart money confidence mean the stock market rally will crash?

Not necessarily. The market can remain irrational for longer periods, and the rally could continue higher. However, the divergence should still be seen as a warning sign that something may not be right with the market.

Q: What does the fear and greed index suggest about market sentiment?

The fear and greed index, which recently reached extreme territory, indicates that there may be excessive exuberance in the market. This further supports the idea that caution should be exercised.

Q: Could the stock market rally continue despite the warnings?

Yes, the rally could still continue and even breach previous highs. However, the warnings from the chart comparing dumb money and smart money confidence should not be ignored, as they suggest a potential downturn in the future.

Summary & Key Takeaways

  • The S&P 500 has experienced a powerful rally, leading many to believe that the bear market is over and the good times have returned.

  • However, a chart comparing the confidence of dumb money (retail investors) and smart money (institutions) reveals a significant divergence, indicating potential overconfidence in the market.

  • The fear and greed index, which measures market sentiment, reached extreme territory recently, further adding to concerns of exuberance.

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