torontoanalyst

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.

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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.

torontoanalyst

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.

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

torontoanalyst

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.

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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.

torontoanalyst

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.

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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.

torontoanalyst

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.

torontoanalyst

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

A) resistance level.

B) break-out point.

C) support level.

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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.

torontoanalyst

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

A) supply of a stock to decrease substantially.

B) demand for a stock to increase 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.

torontoanalyst

Point and figure charts are most likely to illustrate:

A) the length of time over which trends persist.

B) significant increases or decreases in volume.

C) changes of direction in price trends.

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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 significiant (the box size) and when to note changes of direction in prices (the reversal size). Point and figure charts do not show volume and are not scaled to even time periods.

torontoanalyst

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

A) tracking the index.

B) underperforming the index.

C) outperforming 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. 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 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).

torontoanalyst

The advantages of using technical analysis include:

A) the incorporation of psychological reasons behind price changes.

B) ease in interpreting reasons behind stock price trends.

C) complete objectivity.

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Technical analysis avoids having to use fundamental data and adjusting for accounting problems, incorporates psychological as well as economic reasons behind price changes, and tells WHEN to buy; not WHY investors are buying. Drawbacks include subjective interpretation of charts and graphs.