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FINA 408 > Itech lecture 11 > Flashcards

Itech lecture 11 Flashcards

1
Q

How is sentiment defined

A

The net amount of any group of market player’s optimism or pessimism

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2
Q

When may the market be accompanied with sentiment

A

If price is considerably above or below intrinsic value (fair value)

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3
Q

If emotions (sentiments) become excessive and prices deviate from the norm, what may happen

A

Price reversal back to the mean

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4
Q

What are the three types of players in the market

A

1) the uninformed
2) the informed
3) liquidity players

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5
Q

The majority of the market is made up of what kind of players?

A

Made up of uninformed players

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6
Q

What can be said about when uninformed players buy and sell

A

They buy at peaks and sell at bottoms

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7
Q

Can professionals be uninformed investors?

A

Yes

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8
Q

What qualifies someone as an uninformed player?

A

The timing of their moves

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9
Q

How do informed players usually act compared to the majority of players?

A

They act in the contrary way (opposite)

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10
Q

What can be said about when informed players buy and sell

A

They buy at market bottoms and sell at tops

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11
Q

How can someone know the direction of future prices with market sentiment

A

By determining how each group is acting

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12
Q

Especially in market extremes, who acts correctly and who act incorrectly

A

The informed act correctly and the uninformed act incorrectly

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13
Q

What does crowd behaviour say about groups

A

people tend to conform to their group

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14
Q

What happens as people follow the herd

A

They get caught up in extreme buying and selling, pushing prices to extreme levels

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15
Q

What happens when the market reaches extreme levels

A

Crashes or bubbles

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16
Q

What is contrary opinion

A

Investing in the opposite of crowd behaviour

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17
Q

In contrary opinion, when people are buying, what would you do?

A

Sell

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18
Q

In contrary opinion, when people are selling, what would you do?

A

Buy

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19
Q

What is the “task” of the contrarian player?

A

Find a way to quantity which direction the majority of players in the market are headed

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20
Q

What are sentiment indicators

A

Data sets that give TA an idea of how much prices are at emotionally excessive levels

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21
Q

What can sentiment indicators predict

A

Potential future reversals in trends

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22
Q

**When are sentiment indicators more useful? (2)

A

determining market bottoms when fear has reached an excess
-More useful in analyzing markets than individuals securities

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23
Q

When is emotional excess highest (sharpest)

A

At market bottoms when panic has occurred

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24
Q

How long can optimism last

A

Can last for a long time

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25
Q

Most sentiment indicators focus on which players?

A

The uninformed

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26
Q

Investors who buy call options have what view on the market

A

Bullish view (think the price of security will go up)

27
Q

Investors who buy put options have what view on the market

A

Bearish view (think price of security will go down)

28
Q

What does a put/call ratio represent

A

High put/call ratio would represent market is more bearish than bullish, the opposite is also true

29
Q

If put/call ratio is up, the market should be…

A

Down

30
Q

If put/call ratio is down, the market should be…

A

Up

31
Q

Can volatility be used to measure sentiment?

A

Yes

32
Q

What is the VIX

A

Implied volatility of the S&P 500

33
Q

Are volatility measures forward or backward looking?

A

forward looking

34
Q

When does high volatility tend to occur

A

At periods of stress, uncertainity, most often peaking at market bottom

35
Q

When does low volatility tend to occur?

A

During market rises and market peaks

36
Q

If the VIX trades high, what does this mean?

A

There is some sort of sell-off (prices go down) that occurs

37
Q

If the VIX trades low, what does this mean?

A

The market tends to increase

38
Q

When does the VIX tend to rise exponentially

A

When the market comes under selling pressure,

39
Q

What are polls in sentiment?

A

A simple way of gauging market sentiment by asking players if they are bearish or bullish

40
Q

If the poll points to players being bullish, what does this truly mean?

A

Contrary indicator because these players express optimism at market tops

41
Q

What can be used to measure contrary opinion, why?

A

Mutual funds because they are mostly made up of uninformed players

42
Q

Why do mutual funds hold cash?

A

Because high level of cash usually occurs at stock market bottoms

43
Q

What does margin debt reflect

A

What the uninformed investors are doing

44
Q

What does higher level of debt indicate?

A

Indicator that the uninformed players are more active

45
Q

What does lower level of debt indicate?

A

Indicator that the uninformed players are less active

46
Q

What is the NASDAQ to NYSE volume

A

Measure of speculation

47
Q

When the market peaks what happens to the NASDAQ to NYSE ratio

A

It also peaks

48
Q

When the market bottoms what happens to the NASDAQ to NYSE ratio

A

It also bottoms

49
Q

What can short selling be used for

A

As a contrary indicator

50
Q

When percentage of short sales to total trades increases, this is an indicator of what?

A

Indicates bearish extreme and the market is likely to rise

51
Q

When short sale goes up, the market goes…

A

Up

52
Q

When short sale goes down, the market goes…

A

down

53
Q

What does magazine cover theory indicate

A

Contrary indicator, since they are usually wrong

54
Q

What should players do in regards to insiders

A

Follow insiders buys, but don’t necessarily need to follow insider sell

55
Q

What does the SEC require

A

Requires insiders to report their transactions within 2 days

56
Q

what does the sell/buy ratio take into account

A

number of insider buy and sell transactions for each company

57
Q

What are large blocks

A

It is a large amount of stocks that are bought or sold

58
Q

Who trades large bloks

A

Professionals or the informed players

59
Q

If large blocks are sold, what happens to price

A

Price goes down

60
Q

If large blocks are bought, what happens to price

A

Price goes up

61
Q

What does commitment of traders (COT) report

A

positions of non-commercials (large speculators)

62
Q

If large commercial traders are buying and small traders are selling, what should happen to prices?

A

Prices should rise

63
Q

If large commercial traders are selling and small traders are buying, what should happen to prices?

A

Prices should fall

64
Q

If the COT shows that the funds have an unusually large portion

A

there is a risk that prices may suddenly reverse, since the market is too high

FINA 408 (15 decks)

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