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A trend is most likely to reverse if the price chart displays a:
A)
descending triangle pattern.
B)
head and shoulders pattern.
C)
rectangle pattern.



Head and shoulders (and inverse head and shoulders) patterns typically indicate a reversal of a price trend. Triangle and rectangle patterns typically suggest the price trend will continue in the same direction.

TOP

A trend is most likely to continue if the price chart displays a(n):
A)
ascending triangle pattern.
B)
double top.
C)
inverse head and shoulders pattern.



Triangles are considered to be continuation patterns. An inverse head and shoulders pattern would most likely indicate the reversal of a downtrend, while a double top would most likely indicate the reversal of an uptrend.

TOP

An inverse head and shoulders pattern most likely indicates:
A)
the continuation of a downtrend.
B)
the reversal of an uptrend.
C)
the reversal of a downtrend.



Inverse head and shoulders patterns typically occur after downtrends and indicate that the trend is going to reverse.

TOP

A head and shoulders pattern is most likely to precede a reversal in trend if:
A)
the left shoulder, the head, and the right shoulder occur on increasing volume.
B)
volume decreases between the left shoulder and the head, then increases between the head and the right shoulder.
C)
the left shoulder, the head, and the right shoulder occur on decreasing volume.



Decreasing volume on each of the high prices in a head and shoulders pattern (or each of the low prices in an inverse head and shoulders) suggests weakening in the supply and demand forces that were driving the price trend.

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After trending upward for several weeks, the price of Vibex, Inc. stock reaches a high of $54 before falling to $48 over the following week. The stock then rallies to $57 but then declines again to $48. The following week, the stock increases to $52 on light volume before ending the week at $46. A technical analyst observing this pattern would be most likely to predict that Vibex stock will:
A)
decrease to $37.
B)
decrease to $39.
C)
increase to $50.



The pattern described here is a head and shoulders top with the head at $57 and the neckline at $48. The size of the pattern is $57 − $48 = $9. The price target for the ensuing downtrend equals the size of the head and shoulders pattern and is measured from the neckline: $48 − $9 = $39.

TOP

Which of the following would a technical analyst most likely interpret as a "buy" signal?
A)
10-day moving average crosses above a 60-day moving average.
B)
20-day moving average crosses below a 100-day moving average.
C)
30-day moving average crosses above a 5-day moving average.



When using moving averages to generate trading signals, a "golden cross" of a shorter-term average above a longer-term average is a buy signal, while a "dead cross" under the longer-term average is a sell signal.

TOP

Which of the following would a technical analyst most likely interpret as a "sell" signal?
A)
%K line crosses below the %D line.
B)
Signal line crosses below the MACD line.
C)
Rate of change oscillator begins decreasing.



The %K and %D lines refer to stochastic oscillators. The %K line is calculated based on the highest and lowest prices reached in a selected number of days, and the %D line is a moving average of the %K line. Used as trading signals, crossovers of the %K line above the %D line are buy signals and crossovers below the %D line are sell signals.
With a moving average convergence/divergence oscillator, a sell signal is indicated when the MACD line crosses below the signal line, which is a moving average of the MACD line. If a rate of change oscillator is used to generate signals, these would typically be indicated when the oscillator crosses above or below the level around which it fluctuates (either 0 or 100).

TOP

Bollinger bands are drawn based on the:
A)
difference between two smoothed moving averages.
B)
high and low prices in a recent period.
C)
standard deviation of recent price changes.



To use Bollinger bands, an analyst will calculate the standard deviation of prices over some number of trading days, and typically will draw the bands two standard deviations above and below a moving average for the same number of days.

TOP

A value of 0.8 in the short-term Trading Index (TRIN) most likely indicates that:
A)
the market is overbought.
B)
more investors expect price decreases than increases in the short term.
C)
trading volume is heavier in advancing issues than in declining issues.



The TRIN or Arms index is a flow of funds indicator. Values less than one indicate more trading volume in advancing stocks than in declining stocks, while values greater than one mean more volume is in declining stocks than in advancing stocks.

TOP

Closing prices for a commodity were 21.4 on Monday, 22.2 on Tuesday, 21.8 on Wednesday, 22.4 on Thursday, and 23.2 on Friday. The five-day standard deviation is 0.7 and the 30-day standard deviation is 1.0. On Friday, five-day Bollinger bands using two standard deviations are closest to:
A)
24.6 and 21.8.
B)
23.6 and 20.8.
C)
24.2 and 20.2.



Bollinger bands are drawn a chosen number of standard deviations above and below a moving average, where the moving average and the standard deviation are calculated using the same number of periods. The 5-day moving average is (21.4 + 22.2 + 21.8 + 22.4 + 23.2) / 5 = 22.2. Using two 5-day standard deviations, the upper band on Friday is 22.2 + 2(0.7) = 23.6 and the lower band is 22.2 − 2(0.7) = 20.8.

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