Deck 16: Technical Analysis

Question 1

A period of correction is often followed by a period of ________.

A) channel lines.
B) momentum.
C) reversals.
D) consolidation.

Answer 1

D

Question 2

What do technical analysts believe is the best source of data to use in analyzing stocks?:

A) Corporate earnings growth prospects.
B) Insider buying and selling of shares.
C) Current P/E ratios versus historical ratios.
D) The market itself.

Answer 2

D

Question 3

What is usually shown at the bottom of a bar chart?

A) a point and figure chart
B) advance/decline line
C) closing price
D) volume

Answer 3

D

Question 4

A high short interest ratio is generally interpreted as:

A) a bullish signal.
B) evidence of a downside breakout.
C) a bearish signal.
D) evidence of the presence of odd-lot individual investors.

Question 5

The two primary tools of a technical analyst are:

A) level of the market index and volume.
B) economic indicators and level of the market index.
C) price and earnings.
D) price and volume.

Question 6

All of the following are assumptions made by technical analysts except:

A) Changes in trend are caused by shifts in supply and demand relationships.
B) Stock price movements are independent of one another.
C) Security prices tend to move in trends.
D) Supply and demand of securities are determined by various factors.

Question 7

Which of the following is not one of the three major variables to be decided by the investor in order to construct a moving average?

A) price.
B) time period.
C) weight to be used.
D) type of moving average to be constructed.

Question 8

A support level is a price range:

A) at which a significant increase in demand for a stock is expected.
B) at which a significant increase in supply of a stock is expected.
C) below which a stock price cannot go.
D) above which a stock price cannot go.

Question 9

In order to have confirmation of a major market trend under the Dow Theory, the:

A) industrial and utility averages must confirm each other.
B) transportation and utility averages must confirm each. other.
C) utility average must lead the transportation average.
D) transportation and industrial average must confirm each other.

Question 10

Which of the following is true regarding the resistance level?

A) Resistance levels tend to develop due to profit taking.
B) It is the level at which a significant decrease in demand is expected.
C) It is the level at which a significant increase in supply is expected.
D) Resistance levels usually develop after a stock reaches a new low.

Question 11

Technical analysis differs from fundamental analysis in that technical analysis:

A) is aimed at the market while fundamental analysis is aimed at individual stocks.
B) is based on published market data and focuses on internal factors.
C) focuses on the long-term trends of production.
D) does not consider price and volume.

Question 12

Technical analysis reflects the idea that stock prices:

A) move upward over time.
B) move inversely over time.
C) move in trends.
D) move randomly.

Question 13

The oldest approach to common stock selection is:

A) technical analysis
B) fundamental analysis
C) stochastic analysis
D) value analysis

Question 14

One rule of thumb is that a stock is attractive when the relative strength has improved for at least ---------------months.

A) 1
B) 2
C) 3
D) 4

Question 15

Which of the following is not true regarding the Dow Theory?

A) It is intended to forecast the start of a primary movement.
B) It does not forecast how long a movement will last.
C) It has a very high success rate.
D) It is subject to many criticisms.

Question 16

One of the primary tools of a technical analyst is:

A) sell-side research.
B) buy-side research.
C) Value Line earnings estimates.
D) chart of stock price and volume.

Question 17

Technical analysis is sometimes called market or ________ analysis.

A) external.
B) internal.
C) stochastic.
D) qualitative.

Question 18

Which of the following is a characteristic of the short interest ratio: It is:

A) calculated daily as well as weekly.
B) often interpreted without any additional information.
C) between 2 and 3 in recent times.
D) considered to be a measure of investor sentiment.

Question 19

The breadth of the market is typically measured by which of the following:

A) 200-day moving average.
B) 50-day moving average.
C) the put-call ratio.
D) the advance-decline line.

Question 20

Volume and specific calendar time are not considered important in a:

A) Logarithmic price and volume chart.
B) Point and figure chart
C) Nominal price and volume chart.
D) Moving average convergence and divergence chart.

Question 21

If a trading rule has been tried on data other than that used to produce the rule and found to be accurate, this is known as:

A) consistency.
B) relative strength.
C) out-of-sample validity.
D) a filter rule.

Question 22

The bearish-sentiment index is calculated as the ratio of advisory services that are bearish to the total number with an opinion.

Question 23

Technical analysis focuses on timing and on the short run.

Question 24

Fama and Blume (1969) tested 24 filters ranging from 0.50% to 50% on each of the 30 DJIA stocks. Among the tested filters:

A) several were profitable before commissions but not after.
B) several were profitable before and after commissions.
C) none were profitable even before commissions.
D) all were profitable before commissions but not after.

Question 25

The short interest ratio is found by dividing the number of shares sold short by the average:

A) number of shares outstanding in the market.
B) daily volume of trading on the exchange.
C) number of stocks reaching new lows.
D) daily number of stocks bought long.

Question 26

Which of the following is not one of the tests of a technical trading rule?

A) Transaction and other costs
B) Consistency
C) Return
D) Risk

Question 27

The Dow theory is intended to forecast the start but not the duration of a primary movement.

Question 28

Technical analysts agree with the fundamental analysts regarding the usefulness of accounting data.

Question 29

Technical analysis utilizes a top-down, fundamental approach to common stocks.

Question 30

Which of the following would be considered a strong bearish signal?

A) High mutual fund liquidity
B) Bullish advisory opinion
C) Low short interest ratio
D) Bearish advisory opinion

Question 31

Conclusions about technical analysis suggest that:

A) it is to justify technical analysis.
B) it has been found to be completely deficient.
C) stock price movements repeat themselves constantly.
D) there is complete agreement about the interpretation of technical signals.

Question 32

A bar chart is the simplest type of chart used in technical analysis.

Question 33

Some recent research shows technical analysis may have some value. For example, Brown and Jennings (1989) show investors can learn something about other investors by observing prices at which securities trade - i.e., prices reveal information and convey it. What other kinds of today's models open up the possibility of profitable trading strategies using technical analysis?

A) Arbitrage.
B) Trading Rules.
C) Short-interest.
D) Behavioral.

Question 34

A put/call ratio of .70 indicates:

A) puts have a cost 70% less than the cost of calls.
B) there are 7 puts purchased for every one call purchased.
C) there are 70% more puts purchased than calls.
D) there are 7 puts purchased for every 10 calls purchased.

Question 35

Small changes in the put/call ratio are considered unimportant, whereas extreme changes convey information. Two rules of thumb are that a ratio greater than _________ based on a 10-day moving average would be excessively bearish and thus a buy signal, and a ratio of less than _____________ would be excessively bullish, and therefore a sell signal.

A) 0.70, 0.65
B) 0.80, 0.45
C) 0.90, 0.25
D) 0.95, 0.05

Question 36

Which of the following indicates the market is at its peak, according to contrarians?

A) the short-interest ratio is low
B) the bearish sentiment index is around 20 percent
C) mutual fund liquidity is low
D) all of the above would indicate a market peak to a contrarian

Question 37

Technicians that utilize the CBOE put/call ratio generally believe:

A) option investors are almost consistent losers.
B) option investors are almost consistent winners.
C) option investors are true technicians.
D) option investors possess inside information.

Question 38

Which of the following is not a contrary trading rule?

A) Relative strength ratio
B) Investment advisory opinions
C) Mutual fund liquidity positions
D) Put/call ratio

Question 39

If an investor buys a stock when its price has increased 15 percent from its previous low, the investor is employing:

A) a contrarian indicator.
B) a filter rule.
C) a sentiment indicator.
D) relative strength analysis.

Question 40

A daily accumulation of stocks advancing or declining is used in:

A) volume of trading analysis.
B) relative strength analysis.
C) breadth of market analysis.
D) short interest analysis.

Question 41

What four factors should be considered in testing technical trading rules?

Question 42

Explain three specific buy signals using a moving average.

Question 43

Explain how profit taking and support levels are related.

Question 44

How does a point-and-figure chart compress many price changes into a small space?

Question 45

Secondary movements are often termed technical corrections.

Question 46

Institutional investors are often considered to have the "smart money," while small, individual investors are not so well informed about the market. Which two sentiment indicators treat both institutions and individuals alike?

Question 47

Relative strength analysis is popular because it is generally not subject to conflicting interpretations.

Question 48

How is relative strength calculated and used?

Question 49

What are support and resistance levels?

Question 50

A put/call ratio greater than the typical upper limit would be interpreted as a bullish signal by the contrarians.

Question 51

In the 1990s, many investment firms hired large numbers of fundamental analysts and very few technical analysts. Following the market downturns of 2000 and 2001, investment firms realized their mistake and hired far more technical analysts than fundamental analysts.

Question 52

A filter rule specifies a breakpoint for a stock or average and trades are made when the price is greater than the filter.

Question 53

Investors who sell short expect to make money when the stock price goes down. How, then, can a high short-interest ratio be considered bullish?

Question 54

If a trend exhibits support and resistance levels simultaneously that appear well defined, the trendlines are referred to as channel lines.

Question 55

The cash position of mutual funds is a contrarian indicator.

Question 56

What is the advance-decline line? What does it tell the technician?

Question 57

Which forms of the Efficient Market Hypothesis addresses the information used in technical and fundamental analysis? Do studies of technical analysis methods tend to support or refute the EMH?

Question 58

How can relative strength analysis be helpful in a top-down approach to security analysis?

Question 59

Discuss the difference in beliefs about price adjustments toward equilibrium in technical analysis and the Efficient Market Hypothesis.