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The Smart Money Flow Index (SMFI) has long been one of the best kept secrets of Wall Street. Everybody knows the importance of well-tested trend- and timing indicators and last hour indicators like the SMFI, which we publish daily on our website. The SMFI was developed by R. Koch in 1997 and is a trademark of WallStreetCourier.com.

The SMFI is based on the idea of Don Hays’ Smart Money Index (SMI) but uses a slightly different time period and formula to remove emotional transactions from the price action of the Dow Jones Industrial Average.

Free Daily Updated Smart Money Flow Index

  • Bullish Signals: Positive divergences between the SMFI and the Dow Jones Industrial Average

  • Bearish Signals: Negative divergences between the SMFI and the Dow Jones Industrial Average

How to Interpret the SMFI?

Since the signals of the SMFI are based on negative and positive divergences, they are often subject of interpretation. Above all, divergences can last for quite a time making it even more complicated for novice users to identify precise entry and exit points. Hence, it is necessary to countercheck these divergences with another indicators in order to remove any misinterpretations. Therefore, we offer our members the Weekly Market Timing Forecast, where we interpret the readings of the SMFI and other well-tested timing indicators which give strong signals.

Another very convenient way to retrieve the buying and selling behavior of Smart Money on a daily basis is to follow the WSC Capitulation Index. This proprietary indicator is an “easy-to-read” version of the SMFI (which is only available in our members section).

  • Bullish Signals: Positive divergences between the SMFI and the Dow Jones Industrial Average

  • Bearish Signals: Negative divergences between the SMFI and the Dow Jones Industrial Average

Overview:
  • Category: Contrarian (Smart Money)
  • Time Frame: Mid-term
  • Update Schedule: Daily
Description/Construction:
  • The Smart Money Flow Index is based on the idea of Don Hays’ Smart Money Index (SMI). The idea is to identify the buying behavior of Smart Money versus Dumb Money in the U.S. stock market by removing emotional driven buying activities from the price action of the DJIA. In contrast to the original formula, the SMFI uses more efficient input data to remove these emotional transactions.
  • The Smart Money Flow Index is calculated according to a proprietary formula by measuring the action of the Dow during two periods: shortly after the opening and within the last hour. The first minutes represent emotional buying, driven by greed and fear on the part of the crowd, based on good and/or bad news. During the opening, there is also a lot of buying on market orders, as well as short covering. Smart money typically waits until the end, and they tend to test the market beforehand by shorting heavily in order to gauge the market’s reaction. Afterwards, the big investments are made. These heavy hitters tend to have the best possible information available, and they have an edge on all the other market participants.
Signals:
  • Bullish: Bullish divergences between the SMFI and the Dow Jones Industrial Average
  • Bearish: Bearish divergences between the SMFI and the Dow Jones Industrial Average
Chart Details:
  • According to the selected view, the return of each index within a pre-defined time frame is shown as a percentage number in the upper part of the chart.
  • The pre-defined time frame depends on the underlying data frequency.
  • Daily data charts are subdivided on a monthly or quarterly basis, whereas weekly data charts are split into quarterly or yearly sub periods.

Further Readings About the Smart Money Flow Index

The Smart Money Flow Index (SMFI) has been featured in many articles. Below, we will provide links to some of them. The articles about the SMFI are interesting and informative, so you should definitely check them out if you have time.

  • Barrons: Interview with market pro Don Hays in Barron’s about the Smart Money Flow Index
  • Financial Post: Follow the Smart Money to the beat market
  • Bloomberg: Powell Shows Markets He Won’t Be Rattled by Volatility – The smart money may head for the hills anyway
  • Godmode Trader: Technical Analyst of Godmode is talking about the Smart Money Flow Index [German]
  • Bloomberg: Smart Money Buying Stocks Shows S&P 500 Rally Has Legs
  • Bloomberg: Bloomberg nominates WallStreetCourier.com’s Smart Money Flow Index as “Chart of the day”

Bloomberg’s official source for the Smart Money Flow Index

Since 2001, WallStreetCourier has been the official source for the Smart Money Flow Index by Bloomberg Professional Service. Below, you will find a screenshot of our Smart Money Flow Index published by Bloomberg.

The easy-to-read version of the SMFI

Our WSC Capitulation Index is based on the same formula like the Smart Money Flow Index, but uses an additional mathematical tweak to derive precise signals. This indicator is known for its incredible timing and has, therefore, become one of the most popular indicator among our members.

First, we calculate the divergences between the SMFI and the Dow Jones Industrial Average (Capitulation Index) and then we use a statistical method (the Fisher Transformation) to measure the selling pressure caused by Smart Money and Dumb Money. Whenever, the Fisher Transformation of the WSC Capitulation Index passes its bearish threshold (above 0.8), Smart Money is selling aggressively into the market whereas Dumb Money is taking the opposite side of the trade (and vice versa). The Fisher Transformation can be found in the 3rd panel of the WSC Capitulation Index Chart (see examples below).

See some examples below, where we show the SMFI and the corresponding readings of the WSC Capitulation Index. Just compare this indicator with the S&P 500 and you will soon know why we became such a respected source for trend- and timing indicators.

Nobody Rings a Bell at Inflection Points – We do!

When Will You Join Smart Money?

Identify Major Inflection Points With Our Smart Money Indicators

  • Retrieve the Buying and Selling Behavior of Smart Money on a Daily Basis.
  • Countercheck Divergences with our Supporting Indicators in Order to Remove any Misinterpretations.
  • Follow our WSC Capitulation Index, an “easy-to-read” version of the SMFI.