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 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.

honeycfa

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.

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

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.

honeycfa

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.

honeycfa

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).