The Smart Money Index (SMI) is a market indicator that tries to separate what emotional, everyday traders do from what large professional investors do. It looks at how the Dow Jones Industrial Average moves in the first 30 minutes of trading versus the last hour. The idea is that early trading is driven by news and emotion, while late-day trading reflects informed institutional money, the so-called “smart money.”
Who created the Smart Money Index?
The indicator is usually credited to market strategist Don Hays, who popularized it in the 1990s. It is sometimes called the Smart Money Flow Index.
How the Smart Money Index is calculated
The SMI is a running total that starts from the previous day’s value:
Today’s SMI = Yesterday’s SMI − opening gain or loss + last-hour gain or loss
- The opening gain or loss is how much the Dow moved in the first 30 minutes.
- The last-hour gain or loss is how much it moved in the final hour.
A quick example
Say yesterday’s SMI was 10,000. Today the Dow jumps 150 points in the first half hour on a news headline, then falls 60 points in the last hour. Today’s SMI = 10,000 − 150 + (−60) = 9,790. The SMI fell because the early buying was “subtracted” and the late selling was counted, suggesting professionals were selling into the rally.
How traders read the SMI
- SMI rising with the market: professionals appear to be buying. The trend looks healthy.
- Bearish divergence: the Dow makes new highs but the SMI falls. This is read as smart money quietly selling while the public buys, a possible warning of a top.
- Bullish divergence: the Dow falls but the SMI rises, hinting that professionals are buying the dip.
Like most indicators, it is watched on a chart over weeks and months, not day to day.
Does the Smart Money Index still work?
Treat it with caution. The theory comes from a time before algorithmic trading, 24-hour news and heavy pre-market activity. Today much institutional trading happens through algorithms spread across the whole day, and many funds trade at the close for index rebalancing rather than to express a view. Studies of the SMI’s ability to predict returns are mixed. It can be an interesting gauge of sentiment, but it should never be the only reason to buy or sell.
Smart Money Index vs other sentiment gauges
- CNN Fear & Greed Index: combines seven measures like volatility, momentum and demand for safe assets.
- VIX: the “fear gauge,” based on S&P 500 option prices.
- Put/call ratio: compares bearish and bullish options bets.
- Market breadth: how many stocks are rising versus falling. A stock market heatmap shows this at a glance.
A note on our name
Smart Money Watch is a financial education site and is not connected to the Smart Money Index or its creators. We share the belief behind the name, though: decisions based on evidence beat decisions based on headlines. For a calmer, long-term approach, start with what is the S&P 500 and dollar cost averaging vs lump sum.
- Live prices and sentiment on every ticker page
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- Price alerts on the stocks and coins you follow
Frequently asked questions
What does the Smart Money Index measure?
It compares the Dow’s move in the first 30 minutes of trading with its move in the last hour, to estimate whether professional investors are buying or selling.
Where can I see a Smart Money Index chart?
Some charting platforms and paid research services publish SMI charts. Because it is simple to calculate, some traders build it themselves from intraday Dow data.
Is the Smart Money Index reliable?
Its track record is mixed, especially since computer trading changed how markets behave during the day. Use it as one sentiment signal among several, not a buy or sell rule.
This article is general information, not financial advice.
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