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ODD LOT PURCHASES/SALES
Overview
Both of these indicators, Odd Lot Purchases and Odd Lot Sales, display what their names
imply: the number of shares (in thousands) purchased or sold in odd lots. An "odd lot" is
a stock transaction of less than 100 shares.
(Unfortunately, the trading of 99 share lots in an effort to skirt the "up-tick" rule,
which requires that specialists take short positions only when prices move upward, has
rendered Odd Lot indicators less reliable.)
Interpretation
The odd lot trade numbers are used in several different ratios and indicators. By
themselves, they show the investment activities of the odd lot traders. Being a contrarian
indicator, a high number of Odd Lot Purchases is generally considered bearish, whereas a
high number of Odd Lot Sales is considered bullish. The idea is to act opposite of the
small, uninformed odd lot traders.
However, it has been my experience that, for whatever reason, the odd lotters have
tended to be on the right side of the market recently.
Example
The following chart shows the Value Line
Composite Index and a 10-day moving average of Odd
Lot Sales.
I drew vertical lines when the odd lotters were selling (as identified by
relatively high moving average values). Conventional odd lot interpretation would have you
buy at these points. However, in retrospect, it appears that these were appropriate
short-term selling points.
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