In the stock market some money are “stupid” and some money are “smart”. Stupid money are coming from speculators, day-traders, hedge funds, which are making enormous amount of small trades every day. Smart money are coming from institutional investors, who are not trading very often but when they trade those huge lots you better watch out.

There is no way to tell what trades are coming from smart and what trades from stupid. But sometimes you can guess, but it’s still no more than an observation. And here is my observation:

nasdaq

As you can see there is a pattern in the last 10 or more days. Big inflow are coming at the open, driving market up. Then a gradual sell-off all the day long. And this is why. I believe that stupid money are usually too excited to make first trades at the market open. Many of them do hold futures in the early morning as well.

In contrast, smart money usually trade slowly, it takes them several hours to make even a single trade. The trade is either spread to a million of small trades that are traded the whole day long, or is taken by an investment bank as a principal position, heavily hedged and then gradually unloaded by a banker to other clients.

What I see is that stupid money buy, smart money sell all the last two weeks or more.

Another observation about Nasdaq:

Nasdaq-2

There is a major resistance at around 2,468, which is at around current level. If we go up from here it’s a good time to buy. It we bounce down it’s a nice point to short – it will go to 2,420.

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