What’s the difference between ‘dumb’ money and ‘smart’ money?




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By Michael P. Regan

’s well known on Wall Street that there is “smart ” and “dumb ,” and often the main difference between the is simply how much of you have.
Doug Ramsey, investment officer for Leuthold Group Llc in Minneapolis, has a more nuanced way spot the difference. And the way he looks at , the divergence between the is flashing an “unequivocal stock market negative for the next several weeks.”
Ramsey considers of options in the Standard & Poor’s 100 Index be the “smart .” On the other hand, the habits of the “dumb ” set can be seen in composite trading volumes in all equity options on the Chicago Board Options .[eap_ad_2] 
Looked at individually, both indicators have enough “noise” that they can be ignored, Ramsey wrote in a research note. Combined, however, the are showing a pattern that could signal trouble for stocks over the next several weeks.
The “smart ” has built up a large of puts giving the right sell the S&P 100, while trading in all options on the CBOE has been dominated by calls giving the right buy, according Ramsey. The latter is a contrarian indicator because, well, they are “dumb ” after all.
Ramsey combined the two measures into a single ratio. His report, dated July 8, showed that throughout the current bull market and the end of the previous one, there were short-term market declines whenever the ratio dipped below 0.4. At the current 0.3, the ratio represents the “most bearish combination of smart-money caution and dumb-money confidence in 10 years.”
Ramsey told Bloomberg News last week that he expected a 6 to 8 percent retreat in stocks this summer. The dip will eventually turn into a buying opportunity as equities resume gains later in the year, he said.
Does the smart money have it right again this ? Only will tell so check back in a few weeks.(Bloomberg)[eap_ad_3]