Question 1

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) The number of stocks hitting all-time highs is low

Accepted Answer

Contrarians believe that low mutual fund liquidity indicates that funds are fully invested, suggesting a market peak as there is little cash left to drive prices higher.

Question 2

Which of the following statements about the put/call ratio is most accurate?
A) A negative ratio is bullish.
B) Investors interpret a ratio greater than 1 to be a bearish indicator.
C) Investors interpret a relatively low ratio to be a bearish indicator.
D) Investors interpret a relatively high ratio to be a bearish indicator.

Accepted Answer

Investors interpret a relatively high ratio to be a bearish indicator because it suggests that there is more demand for puts (options to sell) than calls (options to buy), indicating that investors are expecting the underlying asset to decline in value.

Question 3

Technical analysis focuses on timing and on the short run.

Accepted Answer

Technical analysis involves studying price movements and patterns to predict future market behavior, often used for short-term trading decisions.

Question 4

In a candlestick chart, what does it mean if the candlestick is shaded?
A) It is a bearish indicator.
B) It is a bullish indicator.
C) It means the stock's closing price was above its opening price.
D) It means the stock's opening price was above its closing price.

Accepted Answer

The answer of In a candlestick chart, what does it...

Question 5

Which of the following is not one of the factors to consider in performing a valid test of a technical trading rule?
A) The transaction and other costs incurred by the rule.
B) The consistency of performance from the rule.
C) The holding period implied by the rule.
D) The risk inherent in the rule.

Accepted Answer

The answer of Which of the following is not one...

Question 6

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

Accepted Answer

Relative strength ratio is a momentum indicator, not a contrary trading rule.

Question 7

Assume an individual writes down Hs and Ts to simulate 100 coin flips. On average, how will this series appear relative to the result of 100 actual coin flips? Relative to the actual coin flips, the simulated series will:
A) contain too many runs with too much length per run.
B) contain too many runs with not enough length per run.
C) contain too few runs with too much length per run.
D) contain too few runs with not enough length per run.

Accepted Answer

The answer of Assume an individual writes down Hs and...

Question 8

Technicians that utilize the CBOE put/call ratio generally believe:
A) option investors tend to be losers.
B) option investors tend to be winners.
C) option investors are true technicians.
D) option investors possess inside information.

Accepted Answer

The CBOE put/call ratio is often used by technicians as a contrarian indicator, suggesting that option investors, who are often seen as less informed, tend to be on the losing side of trades.

Question 9

If an investor buys a stock when its price has increased 2 percent from its previous price, the investor is employing:
A) a contrarian indicator.
B) a filter rule.
C) a sentiment indicator.
D) relative strength analysis.

Accepted Answer

The answer of If an investor buys a stock when...

Question 10

If a trading rule has been tested 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.

Accepted Answer

Out-of-sample validity refers to the testing of a trading rule on a different dataset than the one used to create it, to ensure its accuracy and reliability.

Question 11

Which of the following is generally viewed as a bearish indicator for a stock?
A) It has a relatively high short-interest ratio.
B) Its 50-day moving average price has penetrated the 200-day average from above.
C) Following a price drop, the price penetrates the moving average from below.
D) It has an increasing relative strength ratio.

Accepted Answer

The answer of Which of the following is generally viewed...

Question 12

Historical tests of filter rules indicate that:
A) several filters were profitable before commissions, but not after.
B) several filters were profitable before and after commissions.
C) no filters were profitable even before commissions.
D) all filters were profitable before commissions, but not after.

Accepted Answer

Historical tests of filter rules often show that while some filters may appear profitable before accounting for transaction costs like commissions, these profits typically disappear once such costs are considered.

Question 13

Conclusions about technical analysis suggest that:
A) it is difficult 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.

Accepted Answer

Technical analysis is often criticized for its lack of empirical support and the difficulty in justifying its effectiveness compared to other methods like fundamental analysis.

Question 14

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

Accepted Answer

The Dow Theory is designed to identify the start of a primary trend, whether bullish or bearish, but it does not predict how long the trend will last.

Question 15

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.

Accepted Answer

The short interest ratio is calculated by dividing the number of shares sold short by the average daily trading volume, which indicates how many days it would take for short sellers to cover their positions.

Question 16

A put/call ratio of 0.70 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.

Accepted Answer

A put/call ratio of 0.70 means that for every 10 calls purchased, there are 7 puts purchased.

Question 17

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

Accepted Answer

Technical analysis focuses on price patterns and market trends rather than fundamental financial data or economic indicators.

Question 18

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

Accepted Answer

The answer of Which of the following would be considered...

Question 19

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.

Accepted Answer

Breadth of market analysis involves evaluating the number of stocks advancing versus declining to assess the overall market trend.

Question 20

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

Accepted Answer

Technical analysts focus on price movements and patterns, while fundamental analysts use accounting data to assess a company's intrinsic value.

Quiz 16: Technical Analysis

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

Which of the following statements about the put/call ratio is most accurate?

Technical analysis focuses on timing and on the short run.

In a candlestick chart, what does it mean if the candlestick is shaded?

Which of the following is not one of the factors to consider in performing a valid test of a technical trading rule?

Which of the following is not a contrary trading rule?

Assume an individual writes down Hs and Ts to simulate 100 coin flips. On average, how will this series appear relative to the result of 100 actual coin flips? Relative to the actual coin flips, the simulated series will:

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

If an investor buys a stock when its price has increased 2 percent from its previous price, the investor is employing:

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

Which of the following is generally viewed as a bearish indicator for a stock?

Historical tests of filter rules indicate that:

Conclusions about technical analysis suggest that:

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

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

A put/call ratio of 0.70 indicates:

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

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

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

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