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Why NYSE Breadth Can Mislead You at Trader’s Narrative

I’ve mentioned several times that I prefer to look at Nasdaq numbers when it comes to breadth (in a non-cumulative way) because NYSE breadth numbers are “polluted” with non-common stock securities.

These are usually interest rate sensitive. They are municipal bond funds, bonds (yes actual bonds trade on the NYSE), CEF’s, and other weird and woolly financial concoctions.

The result is that these securities move like a great galloping herd. But they don’t move to the rhythms of the stock market. Rather, they take their cue from the bond market. So when you people get spooked about rates (thinking that we won’t see a rate cut or maybe even have a rate increase) these non-common stocks get clobbered.

And that effects the NYSE breadth numbers. Let me show you with one example. Here is the chart for BlackRock Municipal Bond Trust (BBK). Last week it sliced through its 200 day moving average (blue line):

blackrock municipal bond trust bbk.png

Now look at the effect of moves like that one, multiplied by hundreds and hundreds of similar bond-like securities:

NYSE advance decline June 2007.png

That is one really oversold market? Isn’t it? We are at the same extremes that we saw at the Feb-March 2007 market bottom. But are we really? Take a look at the Nasdaq advance decline numbers:

nasdaq advance decline June 2007.png

Oversold? What oversold? We are in neutral territory. And that is how the siren call of the NYSE breadth numbers can throw you off course.

If you’re interested to know how I trade these munis, take a look at My Year End Strategy.

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3 Responses to “Why NYSE Breadth Can Mislead You”  

  1. 1 LP

    Something to learn from…I added the NAS internals and will observe more closely

  1. 1 Breadth Divergences Between the NYSE & Nasdaq
  2. 2 Effect of 30 Year Bond Yields on NYSE Breadth

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