Goal: Understand how public sentiment historically precede or align with S&P500 turning points.

▪ What Larry Said

“The public is perhaps best reflected in an indicator of market activity called “odd lot short sales.” This index simply shows the percentage of transactions of fewer than 100 stocks that are being sold short. The think- ing is that an order for less than 100 shares is most likely an order from the public. That’s because the investor placing such an order does not have enough money to buy 100 shares where there’s usually a big commission break. This should reflect public money (i.e., people without much money)—in any event, the uninformed investor. We have records of odd lot short sales dating all the way back to the 1920s. Looking at more recent data in Figure 4.5, we see they have a very good record of being heavy short sellers right at market lows.

▪ Chart showing current Odd Lot Short Sales

Odd Lot Short Ratio (5 Day Avg.): The number of Odd Lot shares sold short divided by the total number of Odd Lot sales. The higher the ratio, the more bullish the indicator since this unsophisticated group of traders are seldom right when shorting stocks. Readings of 0 to 5 are regarded as bearish, 5.1 to 9.9 are neutral while 10 and higher are bullish.

• Late 1999 - March 2000: Margin debt experienced a dramatic increase, peaking in March 2000. This coincided with an interim daily high for the S&P 500, although the market's highest monthly close for that year occurred later in August.
• 2006 - July 2007: Another significant surge in margin debt began in 2006, reaching its peak in July 2007, just three months before the S&P 500 reached its peak.
• February 2009: Following the financial crisis, margin debt hit a low point in February 2009, the same month the stock market bottomed out. Subsequently, margin debt began another substantial period of growth.
• Post-COVID Pandemic (October 2021 - December 2022): We saw a similar pattern after the initial COVID-19 pandemic. Margin debt soared to an all-time high in October 2021, just two months before the S&P 500 reached its peak in December 2021. The market then bottomed in September 2022, and margin debt followed suit, reaching its most recent low in December 2022.
• Late 2023 - Early 2025: The most recent increase in margin debt began in late 2023 and continued into 2025. The S&P 500 reached its inflation-adjusted all-time high in November 2024, while margin debt reached a relative inflation-adjusted peak in January 2025.
• Now: Margin debt rose for a second straight month, now sitting at its nominal peak and 7.6% off its real inflation-adjusted peak from October 2021. Meanwhile, the S&P 500 is at its nominal and real peak.

▪ Chart Snapshot (2012 to 2025)

from [Market Edge - Dr. Market Edge](https://www.marketedge.com/MarketEdge/DRME/drMarketTimingSentiment.aspx#:~:text=Odd Lot Short Ratio (5 Day Avg.)%3A The,of traders are seldom right when shorting stocks.)

▪ My Observations

• Apr 2025: Margin debt surging ~24.5% YoY (Larry observed that YoY 40% is the threshold) Continue to monitor monthly the YoY.

from https://ycharts.com/indicators/finra_margin_debt?utm_source=chatgpt.com