Odd-lot short interest as a constructed breadth series

Short interest as stored demand

Short interest is the open amount of stock sold after borrowing. The position stays open until a purchase returns the shares.

A large open short interest is treated as stored future demand rather than as a simple count of bearish opinion, because covering purchases remain to be made. That implied later buying is latent covering demand.

How the odd-lot short percentage is built

An odd-lot short is a short sale executed in a parcel smaller than 100 shares.

The odd-lot short percentage equals 200 times odd-lot shorts divided by the sum of odd-lot purchases and sales, which is the same as 100 times shorts divided by the average of those two sides. The construction therefore scales shorts to two-sided odd-lot activity.

Daily prints and the weekly series

Odd-lot shorts are reported daily with a one-day delay and weekly with a two-week delay.

Daily odd-lot short percentages are treated as erratic, so they are combined into a weekly series or taken from the delayed weekly print.

The professional-public mix

A high ratio of professional short sales to public short sales is constructed as a cautionary participant-regime reading even when total short interest is large. The professional-public mix is that relative size, used as a participant-regime filter rather than as another total.

The stated exponential average

A 33 percent exponential average of the weekly odd-lot short percentage is the stated smoother applied to the constructed series. An exponential average is a recursive weekly smoother that assigns a stated weight to the newest observation.

Where the mid-1980s sample sat

The mid-1980s sample of the series stayed below its median through 1983 and 1984 and later averaged higher after professionals used the odd-lot channel more often.

The constructed series sat in its lower quartile before 19 October 1987 and, after a subsequent rise, occupied its upper quartile from March 1988.