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Smart money and dumb money are moving in opposite directions
By: MarketWatch | October 18, 2017

Professional traders are taking a record amount of short positions against the Dow Jones Industrial Average

While all seems calm in the U.S. equity markets, with stocks continuing to hit all-time highs, an interesting trend has emerged beneath the surface.

Combing through the latest Commitments of Traders report from the Commodity Futures Trading Commission (CFTC), we found that commercial traders (“smart money”) have a record number of short positions in the Dow Jones Industrial Average DJIA, +0.18% At the same time, noncommercial traders (“dumb money”) have a record number of long positions.

You may be thinking “one group thinks stocks will go up, and the other thinks stocks will go down. What’s the big deal?”

Here’s the big deal.

Buy low, sell high — a pro’s game

There’s a strong negative correlation between commercial traders’ short positions and the Dow Jones Industrial Average, as the below chart shows. When short positions increase, the DJIA usually falls … perfect timing!



The opposite also is true. When noncommercial traders increase their long positions, the market usually drops shortly thereafter. It seems they have a habit of buying the market at exactly the wrong time.



Given that the “smart money” usually wins this tug of war, let’s focus on the reasons behind their negative outlook for stocks.

Here’s some of the reasons professional money managers may be growing cautious about stocks today.

Value investors say no — here’s why

Findings from Goldman Sachs Asset Management (GSAM) show that by just about every measure, stocks are expensive today. . .

http://www.marketwatch.com/story/smart-money-and-dumb-money-are-moving-in-opposite-directions-2017-10-18

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