978-0134083308 Chapter 9 Part 3

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9.5 Learning Goal 5

1) A principal objective of technical analysis is trying to determine when to invest.

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2) Investors should never combine fundamental analysis and technical analysis.

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3) Resources for technical analysis are readily available on the Internet.

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4) For technical analysts, the forces of supply and demand have an important effect on the

prices of securities.

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5) The stock market is considered strong when the market volume decreases in a declining

market.

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6) Market volume is a function of market demand for and supply of stocks.

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7) The breadth of the market refers to the spread between the number of stocks advancing and

those declining in value.

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8) A relatively high level of short sales is an indicator of a current bull market.

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9) The odd-lot theory supports buying into the market when the number of odd-lot trades rises.

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10) Technical analysis is so called because it relies on sound scientific principles rather than

intuition.

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11) The new high-new lows measure suggests that buying opportunities occur when new lows

outnumber new highs.

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12) An oversold market is generally considered to be overvalued.

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13) Technical analysis primarily monitors shifts in the ________ in the market.

A) level of risk

B) supply and demand forces

C) volume of trading

D) rate of return

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14) Which of the following are included in technical analysis?

I. charting price movements

II. tracking trading volume

III. determining the investor’s risk tolerance

IV. monitoring odd-lot trading

A) I and II only

B) II and III only

C) I, II and III

D) I, II and IV

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15) Technical analysis is used for which of the following purposes?

I. deciding when to enter the market

II. deciding whether to sell a stock

III. deciding which stocks to buy

IV. deciding whether basic economic conditions are favorable for investing

A) I and II only

B) II and III only

C) I, II and III only

D) I, II, III and IV

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16) The principal objective of technical analysis is

A) determining the best time to get into or out of the market.

B) maintaining the lowest level of risk possible.

C) avoiding all unpleasant surprises in the market.

D) increasing trading to improve overall profits.

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17) Which of the following are used as indicators of a strong market in the future?

I. The advance-decline spread is increasing at a time when the advances outnumber the

declines.

II. The level of short interest is relatively high.

III. The net difference of odd-lot purchases minus odd-lot sales begins increasing.

IV. The trading volume increases in a declining market.

A) I and II only

B) III and IV only

C) I, II and III only

D) I, II, III and IV

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18) The odd-lot trading theory advocates that small investors

A) tend to buy high and sell low.

B) react in a manner which generally forecasts the future direction of the market.

C) are the first to react to market changes.

D) tend to be the first to speculate on a bull market.

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19) Which of the following practices are typical of technical analysis?

I. charting

II. computing moving averages

III. computing financial ratios

IV. plotting advance-decline lines

A) I and III only

B) I, II and IV only

C) I, II and III only

D) I, II, III and IV

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20) The new highs-new lows measure typically looks at a period of

A) 10 trading days.

B) one month.

C) 100 days.

D) 52 weeks.

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21) One of the most popular tools of technical analysis is

A) charting.

B) financial statement analysis.

C) investor profiling.

D) investor behavior analysis.

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22) Chartists advocate that

A) history repeats itself.

B) patterns appear that are very clear and distinctive.

C) formations are less important than the direction of the latest price movement.

D) a breakout below a support line is a buy signal.

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23) Technical analysts believe that some of the key elements of market behavior—called

technical indicators-can provide valuable insights about the condition of the market. Briefly

discuss each of the following indicators.

• Market volume

• Breadth of the market

• Short-interest

• Odd-lot trading

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9.6 Learning Goal 6

1) The relative strength index compares a security’s price relative to itself over a period of time.

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2) The simple moving average is a weighted average.

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3) The purpose of moving averages is to reduce the effect of random, short-term market

fluctuations.

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4) The mutual fund cash ratio (MFCR) compares the percentage of an investor’s portfolio held

in cash to the percentage held in mutual funds.

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5) The on-balance volume indicator is used as a means of evaluating the significance of price

movements.

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6) Charts are used as a means of spotting developing trends.

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