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So This Is Why The "Smart Money" Was Selling The Most Stocks In History

Tyler Durden's picture




 

Precisely two months ago, we reported something very troubling, namely that "The "Smart Money" Just Sold The Most Stocks In History." This is what BofA reported at the time: "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."

 

Just to make sure the message was heard loud and clear we followed up ten days later with "The "Smartest Money" Is Liquidating Stocks At A Record Pace: "Selling Everything That’s Not Bolted Down"

We got definitive confirmation that the truly "smartest money in the room", those who dabble not in the bipolar public markets but in private equity had indeed started "selling everything that is not nailed down" several years ago hitting a climax this past quarter, when Bloomberg reported that two years after Leon Black's infamous statement, "other private-equity firms are following suit - dumping stakes into the markets at a record clip."

 

According to Bloomberg data, firms including Blackstone Group and TPG have been "capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period."

What happened next should not have been a surprise to our readers: as we reported shortly thereafter, the divergence between the "smart money flow" and the S&P 500 - which at this point was merely reflecting HFT momentum ignition traps and the occasional stray retail investor - had reached unseen proportions:

 

So following the biggest (and only) market correction in years, the biggest weekly surge in the VIX ever, the second wholesale market flash crash in history coupled with the first ever limit down trade in the Nasdaq and the E-Mini, not to mention the biggest intraday bearish reversal since Lehman, it would appear that the "smart money" was aptly named (and hopefully wasn't selling to you).

And, lo and behold, following the dramatic market moves of the past two weeks, the S&P has finally caught up with the Smart Money flow.

 

A quick reminder of the "Smart Money Flow" index in question:

The Bloomberg Smart Money Flow Index is calculated by taking the action of the Dow in two time periods: the first 30 minutes and the close. The first 30 minutes represent emotional buying, driven by greed and fear of the crowd based on good and bad news. There is also a lot of buying on market orders and short covering at the opening. Smart money waits until the end and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in the big way. These heavy hitters also have the best possible information available to them and they do have the edge on all the other market participants. To  replicate this index, just start at any given day, subtract the price of the Dow at 10 AM from the previous day's close and add today's closing price.  Whenever the Dow makes a high which is not confirmed by the SMFI there is trouble ahead.

Starting sometime in February, the smart money started getting out of Dodge, and yes, "there was troubled ahead."

 

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Tue, 08/25/2015 - 18:23 | 6470383 JamaicaJim
JamaicaJim's picture

HEAPING them stawks on the unwashed....

 

how.....normal

Tue, 08/25/2015 - 18:31 | 6470399 molecool
molecool's picture

Signs of distribution were everywhere for months now - unfortunately very few paid attention. It's the eternal purgatory of the retail investor to be the one left holding the bag.

Tue, 08/25/2015 - 18:38 | 6470422 Jlasoon
Jlasoon's picture

Time for retail investors to masturbate 5 times a day. Helps ease anxiety concerning HFT. Hey might as well plug in the webcam while your at it. Should be easier to make money. 

Tue, 08/25/2015 - 18:42 | 6470437 nmewn
nmewn's picture

Headline that will never be made:

Circuit Breaker Tripped As Panic Buying Resumes ;-)

Tue, 08/25/2015 - 19:07 | 6470515 Occident Mortal
Occident Mortal's picture

This sell off is 100% about the Fed hiking rates.

The Fed needs to stick to its guns here and hike.

Every time, EVERY FUCKING TIME, we get within a month of a Fed hike this market is going to vomit. It's impossible for the Fed to hike without the market producing a big correction in the run up. The Fed needs to take its medicine.

This is just the froth blowing off.

Tue, 08/25/2015 - 19:26 | 6470588 OC Sure
OC Sure's picture

 

 

The monopoly should never hike again.

The monopoly should never cut again.

No more fraud, the Fed should just leave.

Tue, 08/25/2015 - 19:48 | 6470662 Bananamerican
Bananamerican's picture

Smart Money?

How "smart" do you have to be to take a phone call from your buddy on Capitol Hill, the Prop desk, the FED or the Politburo?

Tue, 08/25/2015 - 23:12 | 6471433 Osmium
Osmium's picture

Maybe they are smart because they found a way get that phone call while the rest of us don't.

 

Nah, they are just scumbags.

Tue, 08/25/2015 - 22:42 | 6471343 ginsu2k666
ginsu2k666's picture

I junked ya 'cause ya haven't learned what the FED is about. They are NOT GOING TO DO THE RIGHT THING!

Tue, 08/25/2015 - 20:33 | 6470855 DirkDiggler11
DirkDiggler11's picture

Except for Gold and Silver, one day soon I might add ...

Tue, 08/25/2015 - 18:45 | 6470448 Fredo Corleone
Fredo Corleone's picture

To quote Adam Ant,

"If you don't stop - you will go blind."

Tue, 08/25/2015 - 19:20 | 6470499 ThirteenthFloor
ThirteenthFloor's picture

"Last one in the room, turn out the lites".

"Rip off your face rally"  IOW - dont take it personal, when we get out before you.

Tue, 08/25/2015 - 18:51 | 6470466 Row Well Number 41
Row Well Number 41's picture

More likely unloading them on all those dumbasses doing stock buy backs at record highs.  Lot of corporate money going up in smoke.

#41

Tue, 08/25/2015 - 19:06 | 6470514 Tippoo Sultan
Tippoo Sultan's picture

Possibly, Young Arrius, but nearly as many corporations have curtailed or suspended buyback programs due to weakening earnings, courtesy of the strong dollar.

Tue, 08/25/2015 - 18:59 | 6470491 kill switch
kill switch's picture

 

 

 

Last three month stock marker performance. 1Q

18,144.01 June 23rd

15,666.44 Augusts 25th

Diff 2,477.63

Monthly loss.

824.87

Those idiots must love their 401K HAHAHAHAHA

You can't loose with a financial advisor with a two week corrispondance couse telling you that a 401K is the way to go...Company match and all....

The average loss of a 401K is approx $6,500.00

Tue, 08/25/2015 - 19:26 | 6470590 Venice13
Venice13's picture

Kill, you're being generous. June 23 thru today is two months. Monthly losses = 1,238.82. 

Tue, 08/25/2015 - 20:04 | 6470731 Midas
Midas's picture

"Math is Hard!"

---Barbie

Wed, 08/26/2015 - 20:48 | 6475572 kill switch
kill switch's picture

What ever!! There where losses and I won't blame vodka,,,well maybe.. I think in my haze I was emulating Steve Liesman..Makes all the sense to me...

Tue, 08/25/2015 - 18:26 | 6470386 chdwlch1
chdwlch1's picture

The chart title tells you all you need to know about our "free" markets..."YTD CUM flows"....one big circle jerk for sure....

Tue, 08/25/2015 - 18:25 | 6470391 WillyGroper
WillyGroper's picture

"action of the Dow in two time periods"

Typo? Crime periods...


Tue, 08/25/2015 - 18:27 | 6470397 Squid Viscous
Squid Viscous's picture

that little pillow biter Thom Lee just said we have bottomed, lol...

he also said to keep buying at SPX 2120, so take it with a grain of salt

Tue, 08/25/2015 - 18:31 | 6470406 gaoptimize
gaoptimize's picture

Kudlow on WMAL this morning saying: "Whatever you do, please, please don't sell today."  The smart money sellers need dumb money buyers.

Tue, 08/25/2015 - 19:34 | 6470623 Cheduba
Cheduba's picture

I sold out of all of my stocks into cash in late 2010/early 2011 'cause I thought stocks were overvalued then.

Hopefully all the muppets have enjoyed their fake fiat gains while they lasted.  The value of stocks have done nothing but treaded water since then after adjusting for loss of purchasing power...

Tue, 08/25/2015 - 18:33 | 6470410 I AM SULLY
I AM SULLY's picture

I am so excited about this new bull market ... once I find my cocaine.

https://www.youtube.com/watch?v=rKaQzQAlNn4

Tue, 08/25/2015 - 18:36 | 6470418 Getting Old Sucks
Getting Old Sucks's picture

And yet the talking heads are telling the sheeple to hold steady.  That's so they can get out before it's all gone.

Tue, 08/25/2015 - 18:37 | 6470420 nmewn
nmewn's picture

What's Pisani, Liesman and Krammer have to say about all this?! We need direction and leadership!

Why...I'm completely paralyzed ;-)

Tue, 08/25/2015 - 19:34 | 6470624 razorthin
razorthin's picture

"I'm befuddled"

Tue, 08/25/2015 - 19:36 | 6470627 pacu44
pacu44's picture

Pisani was on today talking about unusual trades and spreads on an ETF and they were unfairly driven lower on Monday.... Pisani must not follow the COMEX AG & AU MARKET...

Tue, 08/25/2015 - 20:00 | 6470713 knukles
knukles's picture

Fuck Pissonmi.  Why do you guys even listen to that crap?
I have to admit that every once in a while I must turn the propaganda on to ensure that I'm up to date on the central meme being pushed.
During time such as these?  We already know the lines being used.  (Wash, rinse, repeat, water from last time around recycled dirty)

Tue, 08/25/2015 - 18:37 | 6470421 blindman
blindman's picture

there is no "money" and that is really
too smart for school.
anyway ....^

Tue, 08/25/2015 - 18:42 | 6470440 NetCentric
NetCentric's picture

I know I'm going to regret trying to ask a sensible question in this place instead of just shouting MOAR! but does anyone know if there is actually a definition for smart money? Everyone seems to use the term but no one actually says specifically who this "smart money" crowd is. Are they the institutional investors? Banks? Are they just an urban myth?

Tue, 08/25/2015 - 18:49 | 6470453 Fredo Corleone
Fredo Corleone's picture

I am unequivocally smart money. Simply ask my brother Mike.

Tue, 08/25/2015 - 18:50 | 6470454 falak pema
falak pema's picture

smart money is money based on actual commercial trades; as opposed to speculative financial trades that do not look at real economy criteria more at financial criteria. SO I guess smart traders look at P/E etc.; not at technicals.

Dichotomy is getting bigger as financial and commercial trades decouple; just like stocks and commodities have.

Tue, 08/25/2015 - 18:56 | 6470481 Shad_ow
Shad_ow's picture

Is there really any honest criteria to support commercial trades any more?

Tue, 08/25/2015 - 18:54 | 6470475 bamawatson
bamawatson's picture

net centric --- as a lifetime pari-muntual denizen; my opinion is smart money is the "investor" who, through sheer happenstance, accidentally hit a race.

Tue, 08/25/2015 - 21:23 | 6471077 nmewn
nmewn's picture

@NetCentric, the first chart certainly gives some clue but not the entire picture.

The term "smart money" is a useful idiot phrase that the stawk pimps use to assure the masses someone is really smarter than them at picking stawks, its just a marketing thing. They never use their own money, they gamble in common stawks with other peoples money via governments loose money supply for the commissions it generates, thus, the term "smart money".

Of course the word gambling is not the same word as investing, where someone has taken a measured informed approach to the risk of loss vs reward as opposed "to this is how much I can afford to lose" approach in Vegas, which as that first chart shows, they've been cashin in their chips since the first of the year while setting up a flight out of town.

Hope this helps...buy buy buy...lol.

Tue, 08/25/2015 - 18:43 | 6470443 Squid Viscous
Squid Viscous's picture

I hope these CNBS 7pm specials are captured for posterity, fucking hilarious. Another one tonight, get your popcorn.

Tue, 08/25/2015 - 19:37 | 6470633 razorthin
razorthin's picture

ooooooooo,the "Markets in Turmoil" from 2008.  Talk about a generational low.

Tue, 08/25/2015 - 18:47 | 6470455 Kaiser Sousa
Kaiser Sousa's picture

theres smart money...

and then theres the smartest money...

thats those of us who would never risk a debt coupon dollar in these fraudulent manipulated fucking so called "markets"...

there r only 2 forms of real money...Physical Gold and Silver....

the rest is all paper bullshit.........

Tue, 08/25/2015 - 18:57 | 6470486 wholy1
wholy1's picture

The pyramid ponzi of principle ONLY loan into circulation without the coupon amount has become so huge that all the new "liquidity" loaned into the "market/economy" is immediately sucked up by the coupon holders of the past principle/debt.  When the 99% are so poor, uncreditworthy and unable to borrow/"authorize" more principle in to the system to cover the 1%'s coupon/yield addiction, it's end game and WAR so the 1% can slink away undetected to their remote, fortified redoubts.

Tue, 08/25/2015 - 19:01 | 6470494 medium giraffe
medium giraffe's picture

The cum sure is flowing.

Tue, 08/25/2015 - 21:07 | 6471000 Iam_Silverman
Iam_Silverman's picture

Ahh, you saw that too?  I was wondering if that chart was part of the files leaked from Ashley Madison.  You know, being named "Chart 2 Year To Date cum flows by client types" and all.....

Tue, 08/25/2015 - 19:05 | 6470511 romario
romario's picture

Bloomberg should be cheaper

Tue, 08/25/2015 - 19:08 | 6470522 NetCentric
NetCentric's picture

I appreciate the interesting suggestions and guesses but nothing I could use in court so far. Curious that so many folks like Tyler use the term in an authoritative manner yet there is no consensus on just what it means. Based on my highly scientific poll with the huge sample size anyway.

Tue, 08/25/2015 - 19:14 | 6470546 tardball
tardball's picture

I would say that we are dealing with a cum blast, not a cum flow.

Tue, 08/25/2015 - 19:36 | 6470628 Stox
Stox's picture

That indicator was first written by Don Hays

Tue, 08/25/2015 - 19:36 | 6470630 starman
starman's picture

Private clien t = LEMINGS

Tue, 08/25/2015 - 19:37 | 6470634 overmedicatedun...
overmedicatedundersexed's picture

to give fox bis credit: tonight it was mentioned, there is a large seller out there, perhaps a country with a commodity economy..gosh they are smart at fox. norway anyone? canada? Australia?..

good I thought it was some mom & pop in peoria illinois.

Tue, 08/25/2015 - 20:01 | 6470716 MATA HAIRY
MATA HAIRY's picture

good work!

Tue, 08/25/2015 - 20:57 | 6470959 VW Nerd
VW Nerd's picture

I suspect the smart/inside money has been, and continues to, quietly exit the market and prevent a panic.  These are the same individuals that are spinning media during this market turn down to calm the outside money and sooth them into staying in the market.  Probably sometime between now and Dow 10K, the inside/smart money will be completely out and announce that the market ship is sinking and can't be saved.  By then the insiders will be in their lifeboats watching the outside dumb money tryng to bail the market ship realizing there is no escape.  I've been spectating since 14K.  Glad I'm out.

Wed, 08/26/2015 - 01:36 | 6471679 Don Keot
Don Keot's picture

My thinking precisely, got out at 14.7K, got PM's and sleep good.:-)

Tue, 08/25/2015 - 20:58 | 6470964 enloe creek
enloe creek's picture

Do you think sweet tarts and pop tarts are brother and sister? If they mate will thier child be a re tart

Tue, 08/25/2015 - 22:59 | 6471387 fowlerja
fowlerja's picture

So at the poker table...if you do not know who the fool is at the table..then it is probably you. Damn I know I should have folded with my dumb money..guess I got greedy...or was it my financial advisor who said buy on the dip..or was it Mr Jim Cramer telling me to hold my "mad money" which very quickly turned into my "dumb money"..

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