Reading 12: Technical Analysis LOS c习题精选 2010, resistance, technical, describe

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LOS c: List and describe examples of each major category of technical trading rules and indicators.

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

A) increase substantially.

B) decrease substantially.

C) cause the stock price to "break out".

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

Generally, a resistance level tends to develop after a stock has experienced a steady decline from a higher price level. Technicians believe that the decline in price will cause some investors who acquired the stock at a higher price to look for an opportunity to sell it near their break-even points. Therefore, the supply of stock owned by investors is overhanging the market. When the price rebounds to the target price set by these investors, this overhanging supply of stock comes to the market and dramatically reverses the price increase on heavy volume.

 

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 c

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Following the "smart money" implies expectation of a bullish market when the:

A) yield differential between high-and low-quality bonds narrows.

B) confidence index is declining.

C) CBOE put/call ratio is high.

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When the spread between high and low quality bond narrows, the confidence index increases, indicating a bullish market.

An increasing CBOE put/call ratio is a bullish sign to a contrarian.

Smart-money technicians look at:

• Confidence index (yield on high-quality bond/yield on average-quality bonds)
• T-bill – Eurodollar yield spreads
• Debit (margin) balances in brokerage accounts

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Point and figure charting is most concerned with which of the following?

A) Time.

B) Price "jumps".

C) Volume.

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A point-and-figure chart includes only significant price changes, regardless of their timing or volume. The technician determines what price interval to record as signficiant and when to note price reversals.

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The point where technicians expect a substantial increase in the demand for a stock to occur is called a:

A) resistance level.

B) support level.

C) break-out point.

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

Generally, a support level will develop after a stock has increased in price and profit taking occurs. Technicians believe that, at some price below the recent high, other investors will buy who did not buy prior to the first price increase and have been waiting for a small price decline to buy. When the price reaches this support price, demand increases substantially and price and volume begin to increase yet again.

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Which of the following statements about contrary-opinion and smart money technicians is most accurate?

A) When investor credit balances are falling, contrary-opinion technicians are bearish.

B) A smart-money technician buys when most futures traders are bullish on stock index futures.

C) A contrary-opinion technician is bearish when the ratio of over-the-counter to NYSE volume is decreasing.

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When investor credit balances are falling, investors are bullish, so contrary-opinion technicians are bearish.

The other statements are incorrect. Contrarians are bullish when OTC-to-NYSE volume is decreasing. When 70% or more of futures traders are bullish on stock index futures, contrary-opinion technicians become bearish and sell.

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

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

• 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 known 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
• Debit (margin) balances in brokerage accounts

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Which of the following statements about contrary-opinion and smart money technicians is most accurate?

A) The CBOE put call ratio is 0.75. Contrary-opinion technicians are bullish.

B) If mutual funds' cash holdings are 13% of total fund assets, smart-money technicians are bullish.

C) When the yield spread on high quality versus lower-quality bonds narrows, the confidence index decreases and smart-money technicians become bullish.

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When the CBOE put call ratio is equal to or greater than 0.50, this suggests that investors are bearish and thus contrary-opinion technicians are bullish.

The other statements are incorrect. When the mutual fund ratio is equal to or greater than 11%, it means that investors are bearish and contrary-opinion technicians are bullish. A narrowing yield spread is a bullish sign to smart-money technicians, but because it means that the confidence index has increased.

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

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

• 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: CFA Institute 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
• Debit (margin) balances in brokerage accounts

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Which of the following statements about contrary-opinion and smart money indicators is least accurate?

A) If OTC volume is decreasing as a percentage of the NYSE volume, investors are bearish.

B) When margin balances in brokerages accounts increase, contrary-opinion technicians are bullish.

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

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Although an increase in margin (debit) balances in brokerages accounts means investors are bullish, 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 bearish if the OTC volume is decreasing relative to NYSE volume.

honeycfa

Which of the following statements about contrary-opinion and smart money indicators is least accurate?

A) If OTC volume is decreasing as a percentage of the NYSE volume, investors are bearish.

B) When margin balances in brokerages accounts increase, contrary-opinion technicians are bullish.

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

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Although an increase in margin (debit) balances in brokerages accounts means investors are bullish, 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 bearish if the OTC volume is decreasing relative to NYSE volume.

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

A) tracking the index.

B) doing better than the index.

C) doing the same as the index.

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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).