honeycfa

An investor who views the Treasury-Eurodollar (TED) spread and the (Barron’s) confidence index as smart-money indicators would consider increases in these measures to respectively be:

A) bearish; bullish.

B) both bearish.

C) both bullish.

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If the Treasury-to-eurodollar spread widens, money is rushing into T-bills, indicating unease about future economic prospects. An increase in the confidence index (high grade bond yield/average bond yield) toward one indicates that bond investors are bullish about future economic prospects.

honeycfa

To determine whether smart investors are bullish, smart money technicians will least likely look for:

A) the rate of inflation to drop below 3%.

B) decreases in quality spreads in the bond market.

C) increases of debit balances in brokerage accounts.

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Inflation is not an indicator of money flows. Increases in debit balances and decreases in the spread between average-quality and high-quality bonds are bullish signs to smart-money technicians.

honeycfa

All of the following are bullish signals to a contrarian EXCEPT when the:

A) Chicago Board Options Exchange (CBOE) Put/Call Ratio is at 0.90.

B) Mutual Fund Ratio is at 3%.

C) Investment Advisor's Ratio is at 75%.

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Ratio	If the indicator is:	Investors are:	Contrarians are:
MFR	< 4%	bullish	bearish
CBOE Put/Call	≥ 0.6	bearish	bullish
Investment Advisor	≥ 60%	bearish	bullish

honeycfa

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 least accurate statement? A smart-money technical analyst recommends buying when:

A) investor credit balances in brokerage accounts increase.

B) debit balances in brokerage accounts increase.

C) the Barron's confidence index is increasing.

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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.

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.

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.

honeycfa

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).

honeycfa

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

honeycfa

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

honeycfa

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.