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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Which of the following would signal a technical analyst to expect a sharp increase in demand for a stock?

A) Price movement into the analyst's support level range.

B) The spread between the yield on high-quality and low-quality bonds widens.

C) Movement into the analyst's resistance level range.

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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 experience a steady decline from a higher price level. Technicians believe that, at some price below the recent peak, other investors will buy who did not buy prior to the first price increase and have been waiting for a small reversal to get into the stock. When the price reaches this support price, demand surges and price and volume begin to increase again.

Generally, a resistance level tends to develop after a stock has experienced a steady decline increase from a higher lower price level. Technicians believe that the decline increase in price will cause some investors who acquired the stock at a higher lower 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.

When the spread between high quality and low quality bonds widens, the confidence index decreases, indicating a bearish market (and likely decreased demand for the stock).

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An indicator calculated as the ratio of the average yield of 10 top-grade corporate bonds to the average yield on Dow Jones 40 bond is known as:

A) relative strength index.

B) confidence index.

C) breadth index.

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This is the definition of the confidence index. In periods of confidence, investors sell quality bonds and buy lower quality bonds looking for yield.  Quality bond prices will fall and their yields rise.  Lower grade bond prices will rise and their yields fall.  Thus, the CI ratio will increase during periods of confidence (e.g., from 0.07/0.10 = 0.7 to 0.08/0.09 = 0.89).  Note that the CI moves in the opposite direction of yield spreads.  In periods of confidence, yield spreads narrow and the CI gets bigger.  In periods of pessimism, spreads widen and the CI falls.

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An indicator calculated as the ratio of the average yield of 10 top-grade corporate bonds to the average yield on Dow Jones 40 bond is known as:

A) relative strength index.

B) confidence index.

C) breadth index.

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This is the definition of the confidence index. In periods of confidence, investors sell quality bonds and buy lower quality bonds looking for yield.  Quality bond prices will fall and their yields rise.  Lower grade bond prices will rise and their yields fall.  Thus, the CI ratio will increase during periods of confidence (e.g., from 0.07/0.10 = 0.7 to 0.08/0.09 = 0.89).  Note that the CI moves in the opposite direction of yield spreads.  In periods of confidence, yield spreads narrow and the CI gets bigger.  In periods of pessimism, spreads widen and the CI falls.

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When technical analysts say a stock has good "relative strength," they mean the:

A) ratio of the price of the stock to a market index has trended upward.

B) recent trading volume in the stock has exceeded the normal trading volume.

C) stock has performed well compared to other stocks in the same risk category as measured by beta.

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This is the definition of relative strength. When the ratio of the stock price to the market price increases over time, the stock is out-performing the market.

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A support level is the price range at which a technical analyst would expect the:

A) demand for a stock to increase substantially.

B) supply of a stock to decrease substantially.

C) demand for a stock to decrease substantially.

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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 experienced a steady decline from a higher price level. Technicians believe that, at some price below the recent peak, other investors will buy who did not buy prior to the first price increase and have been waiting for a small reversal to get into the stock. When the price reaches this support price, demand surges and price and volume begin to increase again.

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A time series calculated as the cumulative number of net advances less net declines is used to indicate:

A) the breadth of the market.

B) smart investors' confidence.

C) support and resistance levels.

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Breadth of market: the technician’s story in this case is that:

• The indexes represent a few large companies, not the whole market.

• The market has many medium and small companies.

• Frequently the index goes one way while smaller issues go the other. Broad market moves are moves in both the large and small companies. How do you gauge the strength of market support, i.e., the breadth of the market? Compare the advance-decline line with the market index.

The advance-decline line is a running total sum of the daily advances less the declines on the NYSE. If the advance-decline line and the index move together, it shows the movement is broadly based across the market. A divergence between the trend in the index and the advance-decline would signal the market has hit a peak or trough.

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Which of the following statements about technical analysts is most accurate?

A) A technical analyst supports the weak form of the efficient market hypothesis.

B) When investors' credit balances are falling, contrary-opinion technicians are bearish.

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

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

The other statements are incorrect. The weak form of the efficient market hypothesis (EMH) refutes technical trading. 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.

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If the CBOE put/call ratio stands at 0.2, then the market:

A) and contrarians are bearish.

B) is bearish, and contrarians are bullish.

C) is bullish, and contrarians are bearish.

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A put/call ratio less than 0.4 indicates that there are more calls in the market than puts. Thus, the market would be bullish and contrarians would be bearish.

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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.