978-0134083308 Chapter 9 Part 4

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7) The advance/decline line is be used to time both the purchase and the sale of securities.

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Question Status: Previous Edition

Learning Goal: Learning Goal 6

8) Which one of the following relative strength values would most indicate that a stock is

oversold?

A) 120

B) 80

C) 20

D) -20

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9) Over the last 14 trading days, the average price increase for Quincy Industries stock was

$0.88 and the average drop on down days was $0.44. The relative strength index for Quincy is

A) 2.

B) 66.67.

C) 50.

D) 33.33.

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10) The theory behind the mutual fund cash ratio is

A) mutual fund managers hold high levels of cash when they are optimistic about market

conditions.

B) when mutual fund managers hold high levels of cash, they must eventually buy stocks with

it.

C) when mutual fund managers hold low levels of cash they are pessimistic about market

conditions.

D) when market conditions are favorable, shareholders remit more cash than the managers can

invest.

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11) On a given trading day, 700 stocks advanced and 1,200 stocks declined. The volume of

declining stocks was 280 million while the volume of advancing stocks was 530 million. What

is the ARMS (a.k.a. TRIN) index value for the day?

A) 0.31

B) 0.91

C) 1.10

D) 3.24

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12) A high TRIN value is considered

A) good for the market when the number of advancing stocks is declining.

B) good for the market when the volume of advancing stocks is declining.

C) bad for the market when the trading volume in the declining stocks is rising.

D) bad for the market when the number of declining stocks is stable.

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13) The confidence index indicates a strong stock market when the

A) ratio of the average yield on high-grade corporate bonds to the average yield on low-grade

corporate bonds rises.

B) ratio between the average yield on S&P 500 stocks to the average yield on high-grade

corporate bonds rises.

C) consumer confidence index rises above its long-term trend.

D) demand for bonds declines relative to the demand for equity securities.

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14) The confidence index indicates

A) stock investors ‘ perceptions of risk in the economy.

B) bond investors ‘ perceptions of risk in the economy.

C) consumers’ perceptions of risk in the economy.

D) investors’ trust in financial advisors.

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15) Which one of the following combinations best signals a strong market?

I. a greater number of advancing stocks than declining stocks

II. a greater number of declining stocks than advancing stocks

III. a greater volume in rising stocks than in declining stocks

IV. a greater volume in declining stocks than in advancing stocks

A) I and III

B) I and IV

C) II and III

D) II and IV

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16) The on balance volume (OBV) indicator

A) considers only the amount of daily trading volume.

B) indicates an up market when heavy volume accompanies price increases.

C) is divergent when the OBV is falling and prices are also falling.

D) rises by 10,000 on a day when the trading volume is 5,000 shares and the price rises by $2.

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17) Which one of the following statements is correct concerning the mutual fund cash ratio

(MFCR)?

A) The lower the value of the MFCR, the stronger the market will be in the future.

B) The MFCR is equal to the cash inflows into money market funds divided by the cash flows

out of money market funds.

C) A low MFCR indicates that fund managers might be forced to sell securities should

investors wish to withdraw funds.

D) A MFCR greater than 12% is considered a bearish signal.

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18) Which one of the following statements is correct concerning the mutual fund cash ratio

(MFCR)?

A) When mutual funds have a lot of cash it is a bearish signal because managers are not buying

stocks.

B) Low mutual fund cash is bullish because it means managers have been buying stocks.

C) High mutual fund cash indicates that fund managers might be forced to sell securities should

investors wish to withdraw funds, a bearish signal.

D) A high MFCR is like high short interest in that it indicates pent up demand.

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19) The on balance volume (OBV) indicator

A) indicates a market bottom when prices and volume are both falling.

B) is optimistic when prices are rising on low volume.

C) is optimistic when prices are rising on high volume.

D) is neutral whenever prices and volume move in opposite directions.

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20) Technical analysts consider the stock market to be strong when volume ________ in a

rising market and ________ during a declining market.

A) increases; increases

B) increases; decreases

C) decreases; increases

D) decreases; decreases

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21) Which of the following is a contrary indicator?

A) odd-lot trading

B) breadth of market

C) the advance/decline line

D) the TRIN measure

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22) Price and volume of shares traded of Salem Industries on four consecutive days are shown

below.

Monday

Tuesday

Wednesday

Thursday

$27

$26

$28

$30

100,000

80,000

70,000

110,000

Compute Salem’s on balance volume at the end of Thursday’s trading. Assume last Friday’s

closing price was $26.50.

A) 200,000

B) -40,000

C) 180,000

D) 360,000

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23) Which of the following is used to identify long-term trends?

A) odd-lot trading

B) breadth of market and market volume

C) 10 moving average

D) 100 day moving average

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24) Which of the following signals that a market top or bottom is near?

A) mutual fund cash ratio

B) the relative strength index

C) odd-lot volume

D) on balance volume

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25) According to chartists, a breakout below a support level

A) is a sell signal.

B) is a signal that the market is stagnant.

C) is a buy signal but only for value investors.

D) is a buy signal.

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26) On a given day, 200 of the S&P 500 stocks were up, 300 were down. Volume for up stocks

was 500 million, volume for down stocks was 700 million. The ARMS or TRIN for that day

was

A) 0.48.

B) 0.70.

C) 0.93.

D) 3.50.

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27) What is the ten-day simple moving average if the latest daily closing prices are $5, $7, $8,

$5, $4, $6, $7, $8, $9, $10?

A) $6.00

B) $6.90

C) $7.67

D) $10.00

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28) Which one of the following statements is correct concerning moving averages?

A) The longer the time period under consideration, the more sensitive the moving average is to

daily price fluctuations.

B) A simple moving average is computed as the arithmetic mode.

C) The shorter the time period under consideration, the easier it is to spot long-term price

trends.

D) A moving average helps remove short-term fluctuations from the analysis.

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29) A sell signal is indicated by a security’s price

A) rising above the moving average.

B) falling below the moving average.

C) equaling the moving average.

D) running parallel to the moving average.

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30) Explain why technical analysts use charts so extensively.

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