Deck 18: Technical Analysis

Question 1

The use of technical analysis flies in the face of the notion that markets are efficient in the:

A) weak-form of the efficient market hypothesis.
B) semi-strong form of the efficient market hypothesis.
C) strong form of the efficient market hypothesis.
D) Technical analysis and the efficient market hypothesis actually complement one another.

Answer 1

weak-form of the efficient market hypothesis.

Question 2

Which one of the following is not part of technical analysis?

A) Technical analysis is a reflection of the idea that prices move in trends.
B) Trends are determined by the changing attitude of investors toward a variety of economic, monetary, political and psychological forces.
C) Based on the top-down approach to fundamental analysis, technical analysis is the last stage.
D) The art of technical analysis is to be able to identify trend changes at an early stage.

Answer 2

Based on the top-down approach to fundamental analysis, technical analysis is the last stage.

Question 3

Technical analysis is based on the following statements except:

A) Technical analysis is based on published market data focusing on internal factors such as the aggregate market, industry average or a stock.
B) The most important factors in technical analysis are the economic and political factors external to the market itself.
C) Technical analysis studies price movements and trading volume across time to analyze trends in stock prices as the stock price adjusts to a new equilibrium.
D) Technicians assess the overall situation concerning stocks by analyzing breadth indicators, market sentiment and momentum.

Answer 3

The most important factors in technical analysis are the economic and political factors external to the market itself.

Question 4

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

A) An upward price movement that fails to surpass the last peak reached is referred to as an abortive recovery.
B) Dow Theory is based on three types of movements, primary, secondary and day-to-day.
C) Dow Theory is intended to forecast the end of bull markets.
D) Day-to-day ripples occur often but are of minor importance in the Dow Theory.

Question 5

Technical corrections:

A) occur during secondary or intermediate in the market.
B) supposedly adjust for previous excesses that have occurred
C) Are of considerable importance in applying the Dow Theory.
D) All of the above are important for the Dow Theory.

Question 6

A resistance 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.

Question 7

Which of the following is not a technical price pattern?

A) head and shoulders
B) double top
C) wedge
D) straddle

Question 8

The advance-decline line:

A) measures the number of stocks hitting both new highs and new lows.
B) can be computed only on a daily basis.
C) can be interpreted without reference to any market index.
D) is often referred to as the breadth of the market.

Question 9

Which of the following is not a sell signal?

A) The stock price falls below the moving average line while the line is still increasing.
B) The actual price is below the moving average, advances toward it, does not penetrate the average, and starts to turn down again.
C) Following a rise, the moving average flattens out or declines, and the price of the stock or index penetrates it from the top.
D) The stock price rises above the moving average line while the line is still falling.

Question 10

An increase in the short interest ratio is interpreted by contrarians as being:

A) bullish as shares need to be repurchased to close out the short sale.
B) bearish as a large volume of buying has already taken place.
C) neutral since the selling and buying cancel each other out.
D) an opportunity for arbitrage in the market.

Question 11

A principal weakness of the Dow Theory is:

A) its use of averages instead of indexes.
B) its attention to general market movements.
C) that it pays too much attention to primary trends.
D) the many versions that are available.

Question 12

Which of the following is true regarding the support level?

A) Resistance levels tend to develop due to profit taking.
B) It is the level at which a significant increase in demand is expected.
C) It is a lower boundary where buyers will act to prevent any additional price declines.
D) All of the above are true for support levels.

Question 13

All of the following are sentiment indicators used by technical analysts except:

A) Short-Interest Ratio
B) Advance-Decline Line
C) Mutual Fund Liquidity
D) The Odd-Lot Theory

Question 14

According to the odd-lot theory:

A) large investors are more likely to buy or sell odd lots.
B) the odd lot investors are usually wrong in their actions at market peaks and troughs.
C) an increase in odd-lot purchases is bullish.
D) All of the above are true for odd-lot theory.

Question 15

The short-interest ratio is found by dividing the total shares sold short by:

A) number of shares outstanding for the company..
B) average daily trading volume for the company.
C) number of stocks reaching new lows on that trading day.
D) number of stocks reaching new highs on that trading day.

Question 16

Some technical analysts believe that people who play the options market:

A) are, as a group, consistent losers.
B) are, as a group, consistent winners.
C) are bound to earn excess profits.
D) possess inside information.

Question 17

If two well-known technical analysts seldom agree on the interpretation of a certain technical pattern, this implies:

A) collusion between the two analysts.
B) technical rules are too complex.
C) technical rules are highly subjective being more of an art-form.
D) not enough information has been gathered.

Question 18

Technical analysis reflects the idea that stock prices move in trends.

Question 19

The Dow theory is intended to forecast both the start but duration of a primary movement.

Question 20

In light of its success rate, the Dow theory is often criticized.

Question 21

Increasing cash positions in mutual funds would be a bullish indicator.

Question 22

A put/call ratio that is increasing would be interpreted as a bullish signal by the contrarians.

Question 23

The use of technical trading rules is a very mechanical exercise without much judgment.

Question 24

Which form of the Efficient Market Hypothesis addresses the information used in technical analysis? Do studies of technical analysis methods tend to support or refute the EMH?