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Despite the overall market downturn in 2025, "smart money" investors have been actively entering the market recently.
Jim Paulsen, a former Leuthold Group strategist, pointed out that an indicator called the "Smart Money Flow Index" is sending a buy signal. The index distinguishes between retail investors (regarded as "dumb money") and institutional investors ("smart money") by comparing trading behavior at the opening and closing of the market. Data shows that the index has recently shown a rare divergence from the Dow Jones Index, which is similar to the start of the bull market in October 2022, which may indicate that the market is about to rebound.


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Paulsen emphasized that transactions at the closing are often more informative and are a window for institutional investors to lay out, and the current return of "smart money" may mean another opportunity to build positions at a low level.

<img src="http://www.profitsqi.com/resource/learning/comment/mkt.png"/>

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https://paulsenperspectives.substack.com/p/smart-money-is-buying

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WallStreetCourier.com

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Leave it to Wall Street to develop such a pretentious barometer – the Smart Money Flow Index.

The Smart Money Flow Index published by WallStreetCourier.com is calculated according to a proprietary formula by monitoring the action of the Dow Jones Industrial Average during two distinct time periods: shortly after the opening and during the last hour of trading each day. The theory is that the first several minutes of each trading day is primarily driven by “dumb money”. Early-day trades are mostly dominated by emotional buying -- greed and fear -- of the naļve crowd based on recent good or bad news. Early trading is also commonly comprised by a lot of buying on market orders and short covering at the opening.

By contrast, “smart money” waits until near the end of the day to trade and they very often test the market before by shorting heavily just to see how the market reacts. Then they move in a big way. These heavy hitters also have the best possible information available to them and are consequently believed to have the edge on all the other market participants. That is, the smart money flow index may best be described as the “Snooty Index”.