5) 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
6) 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
7) 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
8) The principal objective of technical analysis is
A) determining the best time to get into 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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9.5 Learning Goal 5
1) The Dow Theory is used to predict when the markets will change direction based on the long-
term trends in the market.
2) Investors who live in cities with NFL teams should be especially happy when their team wins
the Super Bowl.
3) The stock market is considered strong when the market volume decreases in a declining
market.
4) Market volume is a function of market demand for and supply of stocks.
5) The breadth of the market refers to the spread between the number of stocks advancing and
those declining in value.
6) A relatively high level of short sells is an indicator of a current bull market.
7) The odd-lot theory supports buying into the market when the number of odd-lot trades rises.
8) Technical analysis is a mechanical approach to investing.
9) You are most likely better off doing the opposite of what most investment newsletter experts
advise doing.
10) An oversold market is generally considered to be overvalued.
11) Charts are only used to confirm past trends.
12) Charts are useful as a means of spotting developing trends.
13) The Dow Theory
A) concentrates on the secondary trends in both the industrial and the transportation averages.
B) is used to predict long-term trends in the market based on confirming actions by the
transportation average.
C) contends that the long-term trend of the market remains constant until the industrial average
confirms a shift in direction as first seen in the transportation average.
D) states that the market’s performance can be described by long-term price trends.
14) Which of the following are classified as trading action approaches to market analysis?
I. Super Bowl effect
II. Primary trend with confirmation effect
III. January effect
IV. White House re-election effect
A) I and IV only
B) I, II and III only
C) I, III and IV only
D) I, II, III and IV
15) 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.
16) 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
17) 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.
18) The Dow theory holds that a change in the primary trend has occurred when a rise or fall in
the Dow Jones Industrial Averages is confirmed by a similar movement in
A) the S&P 500 Index.
B) the Dow Jones Transportation Average.
C) the market volatility index (VIX).
D) the NASDAQ 100 Index.
19) 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
20) A technical analyst might have an interest in which of the following?
I. level of short interest
II. relative price level
III. point-and-figure charts
IV. odd-lot transactions
A) I and III only
B) I, II and IV only
C) I, II and III only
D) I, II, III and IV
21) The practice of charting focuses on
I. historical price data
II. interest rate data
III. economic data
IV. volatility data
A) I only
B) I, II and IV only
C) I, II and III only
D) I, II, III and IV
22) A technical analyst tends to
A) employ multiple market measures in his/her analysis.
B) concentrate on a sole market measure to determine market signals.
C) concentrate solely on buy signals in the market.
D) forward test their theories to validate their validity.
23) One of the most popular tools of technical analysis is
A) charting.
B) financial statement analysis.
C) investor profiling.
D) investor behavior analysis.
24) 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.
25) One type of chart designed to keep track of emerging price patterns which has no time
dimension and uses a series of X’s and O’s is known as a
A) bear-and-bull chart.
B) point-and-figure chart.
C) peak-and-trough chart.
D) flagged movement chart.
26) 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.
2) Point-and-figure charts have no time dimension.
3) The simple moving average is a weighted average.
4) Point-and- figure charts and moving averages both reduce the effect of random, short-term
market fluctuations.
5) The mutual fund cash ratio (MFCR) compares the percentage of an investor’s portfolio held in
cash to the percentage held in mutual funds.
6) The advance/decline line is be used to time both the purchase and the sale of securities.
7) Which one of the following relative strength values would most indicate that a stock is
oversold?
A) 120
B) 80
C) 20
D) -20
8) The new highs-new lows indicator is based on prices over the past
A) week.
B) quarter.
C) year.
D) decade.
9) 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.
10) 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 TRIN value for the day?
A) 0.31
B) 0.91
C) 1.10
D) 3.24
11) 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.
12) 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
13) Which one of the following statements concerning technical indicators is true?
A) The stock market is considered weak when market volume falls during a market decline.
B) The market is considered strong as long as the number of stocks that advance in price on a
given day is less than the number that decline.
C) The market is expected to continue along its current trend when there is little difference
between the volume of odd-lot purchases and sales.
D) The market is expected to increase immediately when the volume of short sales begins to rise.
14) 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.
15) 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 value greater than 12 is considered a bearish signal.
16) The on balance volume (OBV) indicator
A) is a key leading indicator of future market movements.
B) is a contradictory indicator.
C) relates trading volume to the advance-decline spread.
D) is used to confirm price trends.
17) Which of the following are contrary indicators?
A) investment newsletter sentiment index and odd-lot trading
B) breadth of market and market volume
C) short-interest and the advance/decline line
D) new highs-new lows indicator and the TRIN measure
18) Which one of the following statements is correct?
A) A point-and-figure chart depicts all of the closing prices of a stock over a period of time.
B) A point-and-figure chart consists of columns of X’s and O’s.
C) A typical bar chart uses vertical bars to show the closing price as well as the change in price
from the previous day.
D) A sell signal occurs when prices break though a resistance line on a chart pattern.
19) 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.
20) 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 Trading Index or TRIN for that
day was
A) .48.
B) .70
C) .93
D) 3.5
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21) 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
22) 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.
23) 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.
24) Explain why technical analysts use charts so extensively.