Portfolio Management: Technical Analysis

Question 1

Arms index

Answer 1

A flow of funds indicator applied to a broad stock market index to measure the relative extent to which money is moving into or out of rising and declining stocks.

Question 2

Bar chart

Answer 2

A price chart with four bits of data for each time interval—the high, low, opening, and closing prices. A vertical line connects the high and low. A cross-hatch left indicates the opening price and a cross-hatch right indicates the close.

Question 3

Bollinger Bands

Answer 3

A price-based technical analysis indicator consisting of a moving average plus a higher line representing the moving average plus a set number of standard deviations from average price (for the same number of periods as used to calculate the moving average) and a lower line that is a moving average minus the same number of standard deviations.

Question 4

Candlestick chart

Answer 4

A price chart with four bits of data for each time interval. A candle indicates the opening and closing price for the interval. The body of the candle is shaded if the opening price was higher than the closing price, and the body is clear if the opening price was lower than the closing price. Vertical lines known as wicks or shadows extend from the top and bottom of the candle to indicate the high and the low prices for the interval.

Question 5

CBOE Volatility Index

Answer 5

A measure of near-term market volatility as conveyed by S&P 500 stock index option prices

Question 6

Change in polarity principle

Answer 6

A tenet of technical analysis that once a support level is breached, it becomes a resistance level. The same holds true for resistance levels; once breached, they become support levels.

Question 7

Continuation patterns

Answer 7

A type of pattern used in technical analysis to predict the resumption of a market trend that was in place prior to the formation of a pattern.

Question 8

Convergence

Answer 8

The tendency for differences in output per capita across countries to diminish over time; in technical analysis, a term that describes the case when an indicator moves in the same manner as the security being analyzed.

Question 9

Death cross

Answer 9

A technical analysis term that describes a situation where a short-term moving average crosses from above a longer-term moving average to below it; this movement is considered bearish.

Question 10

Divergence

Answer 10

In technical analysis, a term that describes the case when an indicator moves differently from the security being analyzed.

Question 11

Double bottoms

Answer 11

In technical analysis, a reversal pattern that is formed when the price reaches a low, rebounds, and then sells off back to the first low level; used to predict a change from a downtrend to an uptrend.

Question 12

Double top

Answer 12

In technical analysis, a reversal pattern that is formed when an uptrend reverses twice at roughly the same high price level; used to predict a change from an uptrend to a downtrend.

Question 13

Elliott wave theory

Answer 13

A technical analysis theory that claims that the market follows regular, repeated waves or cycles.

Question 14

Fibonacci sequence

Answer 14

A sequence of numbers starting with 0 and 1, and then each subsequent number in the sequence is the sum of the two preceding numbers. In Elliott Wave Theory, it is believed that market waves follow patterns that are the ratios of the numbers in the Fibonacci sequence.

Question 15

Flags

Answer 15

A technical analysis continuation pattern formed by parallel trendlines, typically over a short period.

Question 16

Golden cross

Answer 16

A technical analysis term that describes a situation where a short-term moving average crosses from below a longer-term moving average to above it; this movement is considered bullish.

Question 17

Head and shoulders pattern

Answer 17

In technical analysis, a reversal pattern that is formed in three parts: a left shoulder, head, and right shoulder; used to predict a change from an uptrend to a downtrend.

Question 18

Intermarket analysis

Answer 18

A field within technical analysis that combines analysis of major categories of securities—namely, equities, bonds, currencies, and commodities—to identify market trends and possible inflections in a trend.

Question 19

Kondratieff wave

Answer 19

A 54-year long economic cycle postulated by Nikolai Kondratieff.

Question 20

Line chart

Answer 20

In technical analysis, a plot of price data, typically closing prices, with a line connecting the points.

Question 21

Linear scale

Answer 21

A scale in which equal distances correspond to equal absolute amounts.

Question 22

Logarithmic scale

Answer 22

A scale in which equal distances represent equal proportional changes in the underlying quantity.

Question 23

Momentum oscillators

Answer 23

A graphical representation of market sentiment that is constructed from price data and calculated so that it oscillates either between a high and a low or around some number.

Question 24

Moving average

Answer 24

The average of the closing price of a security over a specified number of periods. With each new period, the average is recalculated.

Question 25

Moving-average convergence/divergence oscillator

Answer 25

(MACD) A momentum oscillator that is constructed based on the difference between short-term and long-term moving averages of a security’s price.

Question 26

Overbought

Answer 26

A market condition in which market sentiment is thought to be unsustainably bullish.

Question 27

Oversold

Answer 27

A market condition in which market sentiment is thought to be unsustainably bearish.

Question 28

Pennants

Answer 28

A technical analysis continuation pattern formed by trendlines that converge to form a triangle, typically over a short period.

Question 29

Point and figure chart

Answer 29

A technical analysis chart that is constructed with columns of X’s alternating with columns of O’s such that the horizontal axis represents only the number of changes in price without reference to time or volume.

Question 30

Put/call ratio

Answer 30

A technical analysis indicator that evaluates market sentiment based upon the volume of put options traded divided by the volume of call options traded for a particular financial instrument.

Question 31

Relative strength analysis

Answer 31

A comparison of the performance of one asset with the performance of another asset or a benchmark based on changes in the ratio of the securities’ respective prices over time.

Question 32

Relative strength index

Answer 32

A technical analysis momentum oscillator that compares a security’s gains with its losses over a set period.

Question 33

Resistance

Answer 33

In technical analysis, a price range in which selling activity is sufficient to stop the rise in the price of a security.

Question 34

Retracement

Answer 34

In technical analysis, a reversal in the movement of a security’s price such that it is counter to the prevailing longerterm price trend.

Question 35

Reversal patterns

Answer 35

A type of pattern used in technical analysis to predict the end of a trend and a change in direction of the security’s price.

Question 36

Support

Answer 36

In technical analysis, a price range in which buying activity is sufficient to stop the decline in the price of a security.

Question 37

Technical analysis

Answer 37

A form of security analysis that uses price and volume data, which is often displayed graphically, in decision making.

Question 38

Trend

Answer 38

A long-term pattern of movement in a particular direction.

Question 39

Triangle patterns

Answer 39

In technical analysis, a continuation chart pattern that forms as the range between high and low prices narrows, visually forming a triangle.

Question 40

TRIN

Answer 40

A flow of funds indicator applied to a broad stock market index to measure the relative extent to which money is moving into or out of rising and declining stocks.

Question 41

Triple bottoms

Answer 41

In technical analysis, a reversal pattern that is formed when the price forms three troughs at roughly the same price level; used to predict a change from a downtrend to an uptrend.

Question 42

Triple tops

Answer 42

In technical analysis, a reversal pattern that is formed when the price forms three peaks at roughly the same price level; used to predict a change from an uptrend to a downtrend.