Evaluating member versus odd-lot breadth

What the index compares

A comparative participation index is built from exchange-member purchases and sales together with odd-lot purchases and sales. In this workflow, market breadth is that two-cohort participation contrast, used as a directional market condition rather than an advance-decline count.

Exchange members are the more-informed cohort. Odd-lot trading is the less-informed cohort. Member sales enter the construction only after an adjustment for odd-lot transactions. The member-odd-lot index is the scaled participation ratio that results.

How the series is read

The series presented for reading is a 33 percent exponential average of the raw member-odd-lot index. Exponential smoothing is applied before any band is read. Deviation bands are drawn two-thirds of a standard deviation above and below the mean of the smoothed index.

How crossings are tested

Band crossings were scored against subsequent market direction at three-month, six-month, and one-year horizons over a ten-year sample. A chi-square test was applied to those directional scores as a check against chance. The test is a formal check on whether directional scores at those fixed horizons differ from an independence baseline.

What was shown with price

The smoothed participation series was plotted for visual comparison with a major industrial-average price chart. Illustrative episodes cited for the smoothed series include bullish readings in 1985, a bearish turn months before October 1987, and bullish readings late in 1988.