Question 1

A period of correction is often followed by a period of ________.
A) channel lines.
B) momentum.
C) reversals.
D) consolidation.

Accepted Answer

A period of correction typically involves a decline in prices, which can lead to oversold conditions. This is often followed by a period of consolidation, where prices move within a narrow range as buyers and sellers evaluate the market. This consolidation period can be seen as a resting phase before the next move in either direction.

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.

Accepted Answer

Technical analysts believe that the best source of data to use in analyzing stocks is the market itself, including price and volume data. They believe that past patterns and trends in the market can indicate future movements in stock prices. Other factors such as corporate earnings growth prospects, insider buying and selling, and P/E ratios are taken into consideration, but the market is the primary source of data for technical analysis.

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

Accepted Answer

The volume is typically shown at the bottom of a bar chart to indicate the amount of trading activity that occurred during each time period represented by the bars.

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.

Accepted Answer

The answer of A high short interest ratio is generally...

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.

Accepted Answer

The two primary tools of a technical analyst are price and volume. Technical analysis is based on the premise that market movements are not entirely random and can be predicted by analyzing historical price and volume data. Price charts and volume charts are used to identify patterns and trends in the market, and technical analysts use these tools to make decisions about when to buy or sell securities. Economic indicators and the level of the market index are not primary tools of technical analysis, although they may be considered as secondary factors. Price and earnings are relevant for fundamental analysis, which is a different approach to investment analysis.

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.

Accepted Answer

Technical analysts believe that stock price movements are not independent of one another but are instead influenced by past and current price action as well as broader market trends. Therefore, assumption B is incorrect.

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.

Accepted Answer

The three major variables to be decided by the investor in order to construct a moving average are price, time period, and type of moving average to be constructed. The weight to be used is not a major variable in constructing a moving average.

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.

Accepted Answer

A support level is the price level where buyers are expected to enter the market and create demand for the stock, preventing it from falling further. Therefore, option A is the best choice as it describes a price range where a significant increase in demand for the stock is expected.

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.

Accepted Answer

According to the Dow Theory, in order to confirm a major market trend, the transportation and industrial averages 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.

Accepted Answer

The answer of Which of the following is true regarding...

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.

Accepted Answer

Technical analysis is based on published market data such as price and volume, and focuses on internal factors such as trends and patterns in the market. In contrast, fundamental analysis looks at the underlying financial and economic factors that affect individual stocks, such as earnings reports and industry trends. Option A and C are incorrect because technical and fundamental analysis are both used to analyze individual stocks and market trends. Option D is incorrect because technical analysis heavily relies on price and volume in its analysis.

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.

Accepted Answer

Technical analysis is based on the idea that stock prices move in trends. This is because technical analysts believe that market participants, such as buyers and sellers, react similarly to market events and this creates price movements that can be identified and analyzed. While stock prices may move upwards or downwards over time, technical analysis focuses on identifying patterns within these movements to make predictions about future price movements. Random movements are not considered to be significant in technical analysis.

Question 13

The oldest approach to common stock selection is:
A) technical analysis
B) fundamental analysis
C) stochastic analysis
D) value analysis

Accepted Answer

The answer of The oldest approach to common stock selection...

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

Accepted Answer

The answer of One rule of thumb is that a...

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.

Accepted Answer

The statement "It has a very high success rate" is not true regarding the Dow Theory. While the Dow Theory is a widely recognized method of technical analysis, it is not infallible and has been subject to criticism and debate.

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.

Accepted Answer

Technical analysis involves studying the chart of a stock's price and volume to identify trends and make predictions about future price movements. Therefore, the primary tool of a technical analyst is a chart of stock price and volume.

Question 17

Technical analysis is sometimes called market or ________ analysis.
A) external.
B) internal.
C) stochastic.
D) qualitative.

Accepted Answer

Technical analysis is also known as internal analysis because it focuses on analyzing the price and volume data of a security or market to identify patterns and trends. It does not consider external factors such as economic indicators or news events. The other options (A, C, D) are not relevant to the definition of technical analysis.

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.

Accepted Answer

The short interest ratio is considered to be a measure of investor sentiment, as it shows the level of investor interest in a particular security. It is not calculated daily, but rather only on a monthly basis. It is also not limited to a range between 2 and 3 and should be interpreted with additional information about market conditions and company performance.

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.

Accepted Answer

The advance-decline line is a common method for measuring the breadth of the market. It tracks the number of advancing stocks versus the number of declining stocks on a given day, providing an overall picture of market participation. A higher number of advancing stocks indicates a broad-based market rally, while a lower number indicates a narrower rally led by a few stocks. The other options listed are technical indicators but do not provide a measure of market breadth.

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.

Accepted Answer

Point and figure charts rely solely on changes in price movements and do not consider volume or specific calendar time. They are also plotted on a logarithmic scale.

Quiz 16: Technical Analysis

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

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

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

A high short interest ratio is generally interpreted as:

The two primary tools of a technical analyst are:

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

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 support level is a price range:

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

Which of the following is true regarding the resistance level?

Technical analysis differs from fundamental analysis in that technical analysis:

Technical analysis reflects the idea that stock prices:

The oldest approach to common stock selection is:

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

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

One of the primary tools of a technical analyst is:

Technical analysis is sometimes called market or ________ analysis.

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

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

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