Buzz & Banter
Tony makes a good point. Of the 3,500 or so issues listed on the NYSE, you can slice and dice them in several different ways (taking out foreign entities, REITS, bond funds, preferred shares, etc.). I don't doubt Lowry's figure of 48% of the issues being non-operating. Adding to the challenge, decimalization may have an impact on the breadth figures as well. If it took a 1/16 (6 cents) move to push a stock into changed territory before, now it only takes as little as 1 cent.
My approach to these kinds of dilemmas is to keep a close eye on the traditional figures. If they work consistently, then use them. If not, then toss them and find something else, or figure out a way to adjust them for changing market dynamics. Unless and until the breadth figures that are reported fail to work consistently, I don't believe in monkeying with them too much. There will always be some outside trend that seems to have an undue influence on a particular segment of the market, and trying to constantly adjust for that is just about impossible (e.g. low interest rates and their impact on the closed-end bond funds).
In any event, if we look at the breadth figures (10-day average of the advance/decline line as a percent of total issues traded) for the securities in the S&P 500 and compare that to the figures for the NYSE in total, they are remarkably similar. The S&P 500 readings will be more volatile simply because there are fewer issues, but the trends and relative highs and lows are very close. In fact, they have had a correlation of 0.89 during the past year. This is very strong and the chances of it occurring by chance are essentially zero.
Certainly the securities in the S&P 500 can be considered operating companies. And since there is such a close correlation between the breadth figures for the S&P and that of the NYSE, I don't think it's necessary -- at this point -- to go through the exercise of adjusting for non-operating entities.
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