Reading 12: Technical Analysis - LOS c ～ Q1-5

答案和详解如下：

1.When the relative strength ratio (stock price over market price) is increasing, the stock is:

A)   tracking the index.

B)   doing worse than the index.

C)   doing better than the index.

D)   doing the same as the index.

The correct answer was C)

Relative strength: When prices of an individual stock or industry change, it is difficult to tell if the change is stock specific or caused by market movements (Beta). Mathematically, if two variables are changing at the same rate, the ratio created by dividing one of the variables by the other will remain constant. This is ratio is called the relative strength ratio.

Relative Strength = Stock Price / Market Price

§ If the ratio increases over time the stock is out-performing the market (a + trend)

§ If the ratio declines over time the stock is under-performing the market (a – trend).

2.Which of the following statements best describes what happens when the relative strength ratio and confidence index decrease?

A)                                                                       the market index is out-performing the stock the average bond yields are increasing

B)                                                                       the market index is out-performing the stock quality bond yields are increasing

C)                                                                       the stock is out-performing the market    quality bond yields are increasing

D)                                                                       the stock is out-performing the market    the average bond yields are increasing

The correct answer was A)

The relative strength ratio = stock price/market price. If the ratio increases over time the stock is out-performing the market, a positive trend. If the ratio declines over time the stock is under-performing the market, a negative trend.

The confidence index is quality bond yields divided by average bond yields. If average bond yields increase the confidence index ratio will decrease.

3.A resistance level signifies the price at which a stock's supply would be expected to:

A)   Decrease substantially.

B)   Cause the stock price to "break out."

C)   Increase substantially.

D)   Decrease to match the demand for the stock.

The correct answer was C)

Most stock prices remain relatively stable and fluctuate up and down from their true value. The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling. This will result in increased supply. The lower limit to these fluctuations is called a support level – the price range where a stock appears cheap and attracts buyers. This will result in decreased supply.

4.Which of the following statements about contrary-opinion and smart money technicians is INCORRECT?

A)   The investment advisory ratio is at 0.65. Contrary-opinion technicians are bullish.

B)   The OTC volume is less than 87% of the NYSE volume. Investors are bearish.

C)   A narrowing of the T-bill - Eurodollar futures spread is a signal for a smart-money technician to buy.

D)   When margin balances in brokerages accounts increase, contrary-opinion technicians are bearish.

The correct answer was D)

Although an increase in margin (debit) balances in brokerages accounts means investors are bullish, it is not an indicator used by contrary-opinion technicians. This would be a bullish sign to smart-money technicians.

The other statements are correct. When the investment advisory ratio (bearish opinions/total opinions) is equal to or greater than 0.60, it means that investors are bearish, and contrary-opinion technicians are bullish. Investors are considered bullish if the OTC volume is greater than 112% of the NYSE volume.

Summary of the indicators for contrary-opinion and smart money technicians:

        Contrary-opinion technicians (trade the opposite of the mass of general investor):

§         Mutual Fund Ratio (mutual fund cash/total mutual funds)

§         Investor credit balances in brokerage accounts

§         Investment Advisory Opinions (bearish opinions/total opinions)

§         OTC (speculative) versus New York Stock Exchange (less speculative) volume

§         CBOE Put/Call ratio

§         Futures traders bullish on stock index futures

        Smart-money technicians (follow the professional investors):

§         Confidence index (yield on high-quality bond/yield on average-quality bonds). Note: AMIR® has been know to use wording about yield spreads (which move in the opposite direction of the confidence index) to test your understanding of this indicator.

§         T-bill – Eurodollar yield spreads

§         Short Sales by Specialists (short sales by specialists / total NYSE short sales)

§         Debit (margin) balances in brokerage accounts

5.Jay Crewson, equity analyst at a large investment bank, formerly worked with a group of contrary-opinion technician traders who traded exclusively using contrary indicators. He was recently transferred to support a group of smart-money technicians. Since he is still adjusting to the “new” rules, he asks Richard Ruscoe, another analyst in the group, to review his work. Ruscoe reviews Crewson’s latest recommendation list and points out that one of the statements is incorrect. Which of the following is the INCORRECT statement? Buy:

A)   debit balances in brokerage accounts increased.

B)   the ratio of short sales by specialists to total NYSE short sales fell below 0.30.

C)   the yield-differential between high quality and lower-quality bonds decreased to 90 basis points.

D)   investor credit balances in brokerage accounts increased.

The correct answer was D)

Increased investor credit balances in brokerage accounts (indicating a bearish trend) are a bullish sign to contrary-opinion technicians. The other statements are true and are indicators used by smart-money technicians. When the yield-differential between high quality and lower-quality bonds narrows (or decreases), it indicates that the confidence index has increased and smart-money technicians are bullish.