Odd (lot) Behavior
All the little guys are on MY side?
I monitor small-trader speculative activity many different ways, but one that I had put on the back burner until only very recently is odd lot trades. An "odd lot" is a trade for fewer than 100 shares, and due to the low dollar amount of the trades (unless it's something like Berkshire Hathaway!), and typically bad fills, odd lot traders are believed to be among the smallest and least informed of all traders. Therefore, when many of them seem to form the same opinion, it normally behooves us to look the other way.
This is an issue now because over the past 5 days, odd lot traders have sold short (i.e. they borrowed stock and sold it, hoping to buy it back later at a lower price and a profit) more than 1.5 million shares daily of NYSE companies. That is not a lot when you consider the size of the market, but it is a lot for these traders - in fact, it is the highest 5-day average in their history. The chart below shows how the market performed after other times these odd lot short sales spiked to an extremely high level.
There is nothing inherent about this data that means the market needs to head higher. Even if all these traders cover all these shorts at the same moment, the market wouldn't even blip. But this data can be a reasonable proxy for small-trader sentiment, and right now it suggests that those who tend to be most wrong at market turning points are extremely pessimistic about higher prices. That makes me want to be bullish, though many of the other measures I track are not confirming this. Depending on how much weight you want to put on data like this, it seems as though the market could be etching out a tradable low sometime soon.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter