Smart Money... What is it? How can you tell?

[toc_bat]

Ok

there is this term, Smart Money, being chucked around all over the place, here are some examples if u donno wot i meeeen, they go somethin like this:

" ... the smart money has been buying up all week and taken a position in this baby ... "

or

" ... this little ripper is under the radar, no speculators in sight but the smart money is in ... "

ok i reckon i have a pretty good idea of who the smart money is, let me try to define it, on the ball serious long term institutional investors who do not speculate much they only buy sure things and/or safe stocks, please correct me,

its not so much the definition i am after but HOW do people know that it was indeed smart money that did the buying this or that morning? Do they read the substantial holder anns? Are some big investors generally considered smarter than others? Or is there some clue that can be gleaned from one minute charts, market depth, etc? Or does it help to have a broker brother in law?

 

[gordon2007]

yeah....what he said. I've been wondering that myself. And if the "smart money" know something that we don't, and buy a share because of that, isn't that insider trading?

 

[theasxgorilla]

It's just made up isn't it?

The journalists way of saying that a boutique fund manager they know through a friend of a friend was heard to have invested back when the share was trading at a 50% discount to last weeks close.

Here's a novel concept...if you were in the stock before it hit the newspaper, you're part of the smart money too.

 

[professor_frink]

" ... the smart money has been buying up all week and taken a position in this baby ... "

or

" ... this little ripper is under the radar, no speculators in sight but the smart money is in ... "

I'd classify the 2 comments above as ramps. Ignore them. They are fairly common comments on intermanet forums.

 

[tech/a]

Smart Money

I think in the majority of cases Prof is on the money,---BUT

Everyone who's on a stock according to someone who is on the same stock.
Only evident to those on a stock,wished they were on it,or got off it too early,or about to jump on.Commonly seen when a stocks doing bugger all or tanking.

Smart Money's not normally seen by people who arent smart---basically all of us!

On the other side of the coin often heavy buying (volume) with little or no movement in price can be seen as accumulation. Its not un common to see price accelerate after a period of unusually high volume with little or no appreciable price movement.

Here is an example.---Smart money---Well it was and is in many cases but I doubt this is what is NORMALLY meant.

 

[alankew]

Tech in the example you give how can such heavy volume not affect the price?

 

[Captain G]

Tech, I too have always been very perplexed by this issue and have seen it on a few occasions. How does one buy up big with little price movement ?? ie What is the motive of the sellers ?? From my point of view, why sell if someone is buying big - they must know of something good coming down the track.
Cheers, Capt.

 

[tech/a]

It basically exhausts sellers.
Note the gap up next day or so on very much lower volume the sellers had to be chased.
Obviously every seller met a buyer in a very close range.
I dont have the intraday chart home but that will be interesting to investigate where the volume fell through out the day.Could have been one big buy but I doubt it. Would have have to have been a block of the same sellers.

I'll pull it up at the office and have a look for anything interesting tommorow.
That will reveal a lot.

The "G" may have the answer.
Could have been a cross trade but that will show quite clearly.

 

[theasxgorilla]

A buy order goes through with a matching sell order (volume and price). The transaction is on market, but the agreement to execute it happened off market.

 

[coyotte]

Think it may have been in "Masters of the Market" where they are talking about Traders being caught in a trading zone for an extended period and just waiting for the opportunity to bail out.

You can see the lead up of the zone in tech/a's chart -- with the lack of volume in the down moves which indicating that supply at this level has dried up -- allowing the SP to move up to the next level of sellers.

Although the circled bar is in conflict with the "buying climax" which states quote "If Vol is exceptionally high with narrow spreads into new high ground, with bars closing middle to top".


Cheers

 

[Kauri]

Hi Tech,
Don't know if converting pref shares lists as vol, if it does this may explain it.

 

[Nick Radge]

Smart Money:

“A group of professional users that act in unison at very specific levels and points of time to change the order of supply and demand”

We can never know who the Smart Money is and it's not necessary to know who they are. They leave their footprints in volume. You need to analyse the relationship between relative volume, the days range and the close.

Do a search for Volume in these pages and you'll see examples.

 

[tech/a]

In the case of LRL it appears that the volume was a cross trade probably the options as Kauri pointed out.Actual trade volume was around 5 mill less than final close out volume reported.
Unfortunately the screen wont take the snap shot of the price scale as its to big.The large red spike is only 175000 shares traded.

Nick what about those same parameters(you mention) to watch the day after?
Can this be a leading indicator/confirmation of new buying after a day like that shown??

 

[stevo]

Smart Money:

“A group of professional users that act in unison at very specific levels and points of time to change the order of supply and demand”

I am curious as to where the definition came from?

This definition is saying that Smart Money is market manipulation. http://www.asx.com.au/supervision/participants/market_manipulation.htm

Do they have to consciously acting in unison? I suppose insider information is also a factor, although not necessarily a given. I would suggest that insider trading is not uncommon on the ASX, regardless of the efforts of the regulators. It would be difficult to prove.

There are a few examples of this happening in the market when it comes to takeovers - QGC comes to mind. I am not sure if it was rumours feeding the market or the "Smart Money" buying in advance of the offer. But the price and volume action certainly triggered a buy for me. Same goes for FLT. I also took MYP but the system I was using for MYP doesn't even look at volume - just price action.

I find it more difficult to use volume information on the larger cap stocks, whereas on stocks outside the ASX100 this sort of "smart money" action tends to stand out more clearly.

It's only smart money if they don't get caught

 

[It's Snake Pliskin]

Smart Money:

“A group of professional users that act in unison at very specific levels and points of time to change the order of supply and demand”

We can never know who the Smart Money is and it's not necessary to know who they are. They leave their footprints in volume. You need to analyse the relationship between relative volume, the days range and the close.

Do a search for Volume in these pages and you'll see examples.

And with the absense of volume the scene becomes that much harder.

 

[It's Snake Pliskin]

I am curious as to where the definition came from?

This definition is saying that Smart Money is market manipulation. http://www.asx.com.au/supervision/participants/market_manipulation.htm

Do they have to consciously acting in unison? I suppose insider information is also a factor, although not necessarily a given. I would suggest that insider trading is not uncommon on the ASX, regardless of the efforts of the regulators. It would be difficult to prove.

There are a few examples of this happening in the market when it comes to takeovers - QGC comes to mind. I am not sure if it was rumours feeding the market or the "Smart Money" buying in advance of the offer. But the price and volume action certainly triggered a buy for me. Same goes for FLT. I also took MYP but the system I was using for MYP doesn't even look at volume - just price action.

I find it more difficult to use volume information on the larger cap stocks, whereas on stocks outside the ASX100 this sort of "smart money" action tends to stand out more clearly.

It's only smart money if they don't get caught

Stevo,

We could call them the "elusive guys"!

 

[Nick Radge]

Nothing to do with insider trading or manipulation as per the ASX defintion.

If Buffett, as an example, decides he likes ZFX at less that $17 what do you think he would do? Exactly, he'd be a buyer on the dip and his buying would support the price. His actions would be shown in the volume in various ways.

Let's assume ZFX trades to $24 and he decides it's over valued he's going to sell when he get's the opportunity. Again, this selling will show itself in the volume and his actions would halt any further advances.

Now in both situations, do you think he's going to announce it to the market? No.

Is he changing the balance of supply and demand? Yes.

Is he manipulating the market? No.

Those that watched the webinar in December (next one is this Satuarday)saw some good examples - TLS and AWB - of where Smart Money were in and changing the supply/demand equation. If you take the time to look at the weekly charts on both you'll see the "footprints". I recommended AWB at $2.81 in late November and TLS at $4.00 on 12 December. Now that the supply has been overcome in both stocks they should, theoretically, be able to rise with relative ease and that appears to be the case.

 

[bingk6]

Hi Nick,

I am curious to your intrepretation of high volume coupled with a tight trading range. In the example that tech posted earlier in the thread, he referred to it as accumulation whereas I seem to recall one of your earlier threads that saw the same situation as an opportunity by the smartmoney to offload stock without decimating the SP.

I guess that there are no right or wrong answers in this, but can be very useful indicator as to things to come.

Bingk6

 

[stevo]

Nick
I understand the Buffett example. It could even be a large group of traders that all follow exactly the same strategy. I guess that they may not be all that smart, just large enough to impact on the market.

The definition you gave mentioned a group of professional users acting in unison at specific price levels.....

 

[Nick Radge]

bingk6,
A tight range on ultra high volume after an upward move is a sign of seller pressure, more specifically Smart Money selling into positive news. I think I showed an example in BHP awhile back in these pages.

The micro caps that are so often quoted herein are not prone to the same volume patterns because of the illiquidity, however, they do have some "transition" patterns that are well worth watching out for. I also edit my volume data considerably when the stock is illiquid. I'd also be more inclined to use weekly or even monthly charts.