Reading 13 - Technical Analysis Flashcards

Question

**Technical Analysis: Relative Strength Analysis**

Answer 1

Relative strength analysis is used to evaluate the relative performance of a security compared to a stated benchmark by plotting the ratio of the security’s price to the benchmark index over time. An upward‐sloping line indicates outperformance, while a downward‐sloping line suggests underperformance. (See Figure 2-10.)

Answer 2

Trend analysis assumes that investors tend to behave in herds and that trends usually continue for an extended period of time. Stock price data may show an uptrend, a downtrend, a sideways trend, or in some cases no trend at all.

Answer 3

An uptrend occurs when a security’s price makes higher highs and higher lows. Higher highs occur when each high lies above the previous high, and when the price declines (there is a retracement) each subsequent low is higher than the prior low. To illustrate an uptrend, the technician connects all the lows on the price chart with a straight line. Major retracements (that drag the security’s price significantly below the trend line) indicate that the uptrend is over and that the price may decline further. In terms of demand and supply, during an uptrend, there are more ready buyers for a security than there are sellers and traders are willing to pay a higher price for the security over time.

Answer 4

A downtrend is indicated by lower highs and lower lows on the price chart. A technician connects all the highs on the chart to illustrate the downtrend. Major breakouts above the trend line may indicate that the downtrend is over and that the security’s price could rise further. In a downtrend, sellers are willing to accept lower and lower prices for the security, which indicates negative investor sentiment regarding the asset. (See Figure 2-11.)

Answer 5

In some cases, a security may trade within a narrow range. During such a sideways trend, there is a relative balance between demand and supply. Typically, options positions are more profitable than long or short positions on the security itself during a sideways trend.

Answer 6

Trend analysis involves the use of support and resistance levels. A support level is defined as the price at which there is sufficient buying interest in the stock to arrest the price decline. At this level, investors believe that the security is an attractive investment despite the recent price decline. (See Figure 2-12.) On the other hand, a resistance level is the price at which enough selling activity is generated to prevent any further increase in price. At the resistance level, investors believe that the security is overpriced. Support and resistance levels may be horizontal or sloped lines. The psychology behind the concepts of support and resistance is that investors have come to a collective consensus about the price of a security.

Answer 7

The change in polarity principle (a key tenet of trend analysis) asserts that once the price rises above the resistance level, it becomes the new support level. Similarly, once the price falls below a support level, it becomes the new resistance level.

Answer 8

Chart patterns are formations on price charts that look like recognizable shapes. Recurring chart patterns can be used to predict future prices because these patterns essentially represent collective investor sentiment over a given time period. Chart patterns may be categorized as reversal patterns or continuation patterns.

Answer 9

As the name suggests, reversal patterns indicate the end of a prevailing trend.

Answer 10

Left shoulder Head Right Shoulder

Answer 11

*Left shoulder:* The left shoulder consists of a strong rally with high volumes, with an upward trend that has a slope that is steeper than that of the preceding uptrend. The rally then reverts to the same price that it started from, creating an inverted “V.”

Answer 12

*Head:* The price starts to rise again, and this time records a higher high than the one reached in the left shoulder. However, volumes in this rally are lower. The price then again falls to the level that the head started from (the same level at which the left shoulder began and ended). This price level is called the **neckline**.

Answer 13

*Right shoulder:* The right shoulder is similar to the left shoulder, but with lower volumes. The price rises almost to the same level as the high of the “left shoulder,” but remains lower than the high reached during the “head.”

Answer 14

While the formation on the price chart may not always be perfect, the head should clearly be above the two shoulders, both of which should be similar. Note that the neckline may not always be a perfectly horizontal line.

Answer 15

Volume is very important in analyzing head and shoulders patterns. The fact that the high of the “head” is higher than the “high” of the left shoulder, but has lower volumes, indicates that investor interest is waning. When one indicator is bullish (rising price) while another is bearish (lower volumes) it is known as a **divergence**.

Answer 16

Volume is very important in analyzing head and shoulders patterns. The fact that the high of the “head” is higher than the “high” of the left shoulder, but has lower volumes, indicates that investor interest is waning. When one indicator is bullish (rising price) while another is bearish (lower volumes) it is known as a **divergence**.

Answer 17

Once a head and shoulders pattern has formed, prices are expected to decline (the uptrend that preceded the head and shoulders pattern is expected to reverse). Technicians use filtering rules to ensure that the neckline has been breached. An example of such a filter is the price declining to a level 3–5% below the neckline. Once the price falls below the neckline (which previously acted as a support level), it becomes the new resistance level (change in polarity principle).

Answer 18

A downtrend in prices precedes an inverse head and shoulders pattern. The price characteristics of each of the three segments of the head and shoulders pattern are reversed in an inverse head and shoulders pattern, but the volume characteristics are the same. For example, in the left shoulder, the slope of the price decline is greater (more negative) than that of the preceding downtrend, but volumes are heavier. Then the rally reverses (with lower volumes) toward where it originated, and forms a “V.”

Answer 19

Once the neckline has been breached in the head and shoulders pattern, the price is expected to decline by an amount equal to the distance between the top of the head and the neckline. An investor can benefit from this expected reversal by shorting the security once the price falls below the neckline and then repurchasing it (closing the position) at the (lower) target price. As shown in Figure 2-14, the price target is calculated as: Price target = Neckline + (Head - Neckline)  Typically, the stronger the rally preceding the head and shoulders pattern, the more pronounced the expected reversal.

Answer 20

Inverse head and shoulders patterns are preceded by a downtrend. Therefore, prices are expected to rise or break out above the neckline after the right shoulder has been formed. (See Figure 2-15.) Price target = Neckline + (Neckline – Head)

Answer 21

A double top occurs when an uptrend in prices reverses twice at approximately the same price level (two highs are recorded at roughly the same level). Usually, the first top has a higher volume. For a double top, the price target (where the reversal will end) is established at a level that is lower than the valley (the low recorded between the two tops) by an amount that equals the distance between the tops and the valley. The more significant the sell‐off after the first top (deeper the valley) and the longer the time period between the two tops, the more significant the formation is considered to be. A double bottom indicates the reversal of a downtrend. It occurs when, following a recent downtrend, prices fall to a certain level, rise for a bit, then fall back to the same level and rise again. (See Figure 2-16.) For double bottoms, the price is expected to rise above the peak between the two bottoms by approximately an amount equal to the distance between the bottoms and the peak.

Answer 22

Double tops and bottoms are significant because they indicate that at a particular price level, investors are ready to step up and reverse the prevailing trend. For example, with a double bottom, the suggestion is that price declines have been arrested at a similar level on two different occasions, indicating that market consensus is that the price is low enough for the security to be an attractive investment.

Answer 23

A triple top consists of three peaks at roughly the same level (see Figure 2-17), while a triple bottom occurs when three troughs are formed at roughly the same price level. Triple tops and bottoms are rare, but when they occur, they indicate more significant reversals than double tops and double bottoms. Generally speaking, the greater the number of times the price reverses at a given price level, and the longer the period over which the pattern is formed, the more significant the expected reversal.

Answer 24

A continuation pattern is used to confirm the resumption of the current market trend. Also known as “healthy market corrections,” these patterns suggest that the current price trend will continue as ownership of securities changes from one group of investors to another. In an uptrend for example, while one group of investors is looking to exit, another stands ready to take a long position on the asset at approximately the same price level.

Answer 25

A triangle pattern is formed when the range between highs and lows over a period narrows down on the price chart. The line connecting the highs over the period eventually meets the line connecting the lows, forming a triangle.

Answer 26

An ascending triangle is formed when the trend line connecting the highs is horizontal while the trend line connecting the lows is upward sloping (see Figure 2-18). Ascending triangles formed during an uptrend indicate that investors are selling the stock at a particular price level, but buyers are willing to purchase the stock at higher and higher prices following any sign of a sell‐off. Eventually the share price is expected to rise.

Answer 27

A descending triangle on the other hand, suggests that the stock price will continue to decline. The line connecting the highs is downward‐sloping, while the line connecting the lows is horizontal. (See Figure 2-19.)

Answer 28

In a symmetrical triangle, the line connecting the highs is downward‐sloping, while the line connecting the lows is upward sloping. The resulting triangle is somewhat symmetrical. (See Figure 2-20.) Such a formation suggests that buyers are becoming more bullish as they continue to buy at higher prices than before, but sellers are becoming increasingly bearish as they sell at successively lower prices. After these little skirmishes between buyers and sellers are over, the trend ends up in the same direction as the trend that preceded the triangle formation.

Answer 29

The height of the triangle (also known as **measuring implication**) equals the distance between the two trend lines at the start of the formation. Once the price breaks through one of the trend lines, analysts expect the price to move further by roughly the measuring implication. Usually, the breakout from the triangle occurs between halfway and three‐ fourths of the way into the pattern; not at the end of the pattern. The longer the triangle pattern, the more significant and volatile the subsequent price movement is expected to be.

Answer 30

When the two trend lines (one that connects the highs and the other that connects the lows) are both horizontal, a rectangle pattern is formed (see Figure 2-21). Once a breakout occurs, the trend in prices is the same as the trend that preceded the rectangle formation. For example, in a bullish market, the rectangle pattern shows that investors are booking profits at the resistance level, but re‐entering the stock at the support level. Once the price breaks out above the rectangle, it will continue to rise.

Answer 31

Flags and pennants form over a much shorter time interval (usually on a daily price chart over a week) compared to triangles and rectangle patterns. A flag is formed when two trend lines are parallel to each other (similar to country flags or parallelograms). Typically, the slope of the trend lines is opposite to that of the prevailing trend. For example, in an uptrend, the trend lines comprising the flag slope down. A pennant (see Figure 2-22) is basically a triangle that is formed over a relatively short span of time (typically over a week). For both flags and pennants, the expectation is that the trend that preceded the formation will continue after the pattern. The breakout beyond the trend line is expected to roughly equal the distance between the start of the trend and the flag or the pennant.

Answer 32

Price‐based technical indicators incorporate current and historical market price information.

Answer 33

A moving average is the average of the closing price over a given number of periods. Moving averages smooth out short-term price fluctuations and therefore, give a clearer picture of a market trend.

Answer 34

A simple moving average uses the arithmetic mean, weighing each price equally in computing the average.

Answer 35

An exponential moving average attaches a greater weight to recent prices in computing the average.

Answer 36

- Generally, a stock that is in a downtrend tends to trade below its moving average, while one in an upward trend will typically trade above its moving average.   - Moving average trend lines can also act as support or resistance levels. When the stock price starts falling toward its moving average, investors might purchase the stock believing that it is approaching its support level.   - When the short-term moving average intersects the long-term moving average from below, the formation is referred to as a *golden cross* and is a bullish sign. On the other hand, when the short-term moving average intersects the long-term moving average from above, it forms a *dead cross* which is a bearish signal. (See Figure 3-1.)  

Answer 37

Bollinger bands consist of a simple moving average plus upper and lower bands that are calculated by adding and subtracting a specific number of standard deviations from the moving average.

Answer 38

- A contrarian technical strategy based on Bollinger bands aims to sell the security when it reaches the upper band and purchase the security when it touches the lower band. The assumption here is that the security will continue to trade within the bands.   - A long‐term investor may purchase the security once it has broken out significantly above the upper band, or short the security once it has fallen significantly below the lower band.  

Answer 39

Momentum oscillators are used to identify changes in market sentiment. They are calculated in such a manner that they either fluctuate within a range (usually between 0 and 100) or hover around a number (such as 0 or 100). It is easy to identify extreme highs and lows on oscillators, and these extremes indicate that market buying/selling activity is more aggressive than historical levels. Technicians focus on whether oscillators and price data are moving in the same direction (convergence) or in different directions (divergence). For example, when the price forms a new low, but the momentum oscillator is not at its lowest, the formation is a divergence. It implies that the downtrend is weakening and is expected to end soon.

Answer 40

- The oscillator range for a security can be used to determine the strength of a trend. Oversold conditions suggest that bearish market sentiment will end soon, while overbought conditions signal that the bullish market sentiment may soon change.   - They may signal a trend reversal when they reach historical highs or lows.   - They can be used to make short‐term trading decisions in nontrending markets.  

Answer 41

A momentum oscillator [rate of change (ROC) oscillator] is calculated as follows:   M = (V – V*x*) × 100   where:  M = momentum oscillator value  V = last closing price  V*x* = closing price *x* days ago, typically 10 days  

Answer 42

When the momentum oscillator value crosses zero into positive territory in an uptrend (when prices are also rising), it is a bullish signal. When it crosses zero into negative territory in a downtrend (when prices are falling), it is a bearish signal. Crossovers that occur in the opposite direction of the trend are ignored because technicians who use oscillators first consider the general trend when making trading decisions.

Answer 43

M = (V/V_x)x100

Answer 44

A relative strength index (RSI) compares a security’s gains with its losses over a given time period (see Figure 3-3). The 14‐day RSI is the most popular one, but longer-term investors will usually use a longer time period.

Answer 45

RSI = 100 – (100/(1+RS)) Where RS = [SUM(Up changes for the period under consideration)]/[SUM(ABS(Down changes for the period under consideration))] The RSI lies between the 0 and 100. A value above 70 typically represents an overbought situation, while a value below 30 usually indicates an oversold situation. However, bear in mind that less volatile stocks may trade in a narrower range. Further, the RSI range for any stock does not need to be symmetrical around 50.

Answer 46

A stochastic oscillator is based on the assumption that in an uptrend, the stock price tends to close near the high of its recent range, while in a downtrend it tends to close around its recent low (see Figure 3-4). The underlying logic is that if the stock price rises during the day, but loses value near the close, the rally is not very strong, as selling pressure eventually negates the buying interest. On the other hand, if the stock price rises during the day and manages to hold on to most of its gains at the close, the signal is bullish.

Answer 47

%K = 100[(C-L14)/(H14-L14)] where:  C = last closing price  L14 = lowest price in last 14 days H14 = highest price in last 14 days %D (signal line) = Average of the last three %K values calculated daily.

Answer 48

The stochastic oscillator should be used with other technical tools, such as trend analysis or pattern analysis. If both methods suggest the same conclusion, the trader has convergence (or confirmation), but if they give conflicting signals, the trader has divergence, which is a warning signal suggesting that further analysis is necessary.

Answer 49

- Generally speaking, when the stochastic oscillator is greater than 80, it usually indicates that the security is overbought and should be sold. A value lower than 20 indicates that the security is oversold and should be purchased. However, analysts should consider the absolute level of the two lines in light of their historical range.   - Crossovers between the two lines can also give trading signals similar to crossovers of moving average lines. When the %K (smoothed line) crosses %D from below, it is a short‐term bullish signal, and if it crosses %D from above, it is a bearish signal.  

Answer 50

The moving average convergence/divergence oscillator (MACD) is the difference between the short-term and long-term moving average of a security’s price. The MACD is composed of two lines: 1) The MACD line, which is the difference between two exponentially smoothed moving average lines (typically over 12 and 26 days).   2) The signal line, which is the exponentially smoothed moving average of the MACD line, (typically over 9 days).   The MACD is compared with its historical levels to determine whether market sentiment regarding the security is different from what it usually is. The indicator itself moves around 0 and has no limits. (See Figure 3-5.)  

Answer 51

**-** Crossovers of the MACD line and the signal line may indicate a change in trend (similar to crossovers of moving averages and the stochastic oscillator).   - When MACD line moves outside its historical range, it indicates a weakening in the current trend.   - Convergence (which suggests that the trend will continue) occurs when the MACD and price move in the same direction, while divergence (which suggests that the trend will reverse) occurs when the MACD and price move in opposite directions.  

Answer 52

Sentiment indicators evaluate investor activity looking for signs of bullishness or bearishness.

Answer 53

A number of companies conduct regular polls of investors and investment professionals to gauge market sentiment. Technicians compare the data (which is also presented graphically) with recent market highs, lows, and inflection points to establish relationships that might be useful in predicting future market direction.

Answer 54

Investors who purchase put options are bearish, while those who buy call options are bullish. The **put/call ratio** is calculated as the volume of put options traded divided by the volume of call options traded. A high put‐call ratio indicates that the market is bearish, while a low ratio suggests that the market is bullish.  

Answer 55

The **CBOE Volatility Index (VIX)** measures short-term market volatility and is calculated from the prices of options on stocks in the S&P 500. The VIX rises when the market fears a market decline.  

Answer 56

Studies have shown that **margin debt levels** (loans taken by individual investors to fund stock purchases) are very strongly correlated with the movement in the market. For example, margin debt reached its peak in the summer of 2007 (when the market recorded a recent high as well). Margin debt declined sharply in the second half of 2008 when the subprime crisis hit the market.  

Answer 57

Short interest refers to the number of shares sold short for a particular security. The **short interest ratio** is calculated as:   Short interest ratio = Short interest / Average daily trading volume This indicator may be interpreted in two ways. A high ratio may suggest that: - There is overall a negative outlook on the security and one should expect the  price to decline.   - The effect of short sales has already been factored into the current market  price. When these short sellers cover their positions, the price of the stock will rise.

Answer 58

Technicians also look at the potential demand and supply for securities in making trading decisions.  They include Arms index (TRIN), Margin debt, mutual fund cash position, and new equity issuance.

Answer 59

Also called the short-term trading index (TRIN), the Arms index is a common flow of funds indicator that looks at how much money is flowing into, and out of leading stocks.   Arms Index = [Number of advancing issues/Number of declining issues] / [Volume of advancing issues/Volume of declining issues] When the market is in balance, the Arms index is close to 1. Values above 1 indicate that there is more activity in declining stocks, and that the market is in a selling mood. Values below 1 indicate that there is more activity in advancing stocks and that market sentiment is currently bullish.  

Answer 60

Margin loans may increase stock purchases, while declining margin balances may force the selling of stocks.

Answer 61

Mutual funds typically hold a proportion of their portfolios in the form of cash to fund redemptions and to pay for miscellaneous expenses. Contrarian technicians believe that low mutual funds cash positions mean that mutual funds have already invested in the market, while high cash positions show that mutual funds are relatively liquid, and security prices will rise once they enter the market. Therefore, contrarians buy when mutual funds’ cash positions are high and sell when their cash positions are low. The average cash percentage of mutual funds has historically hovered around 6.8%.

Answer 62

Issuers of new securities try to time the offer such that it coincides with a period during which investor appetite for new issues is high and when the market is bullish so that they can obtain premium prices. Premium prices occur near market peaks. Therefore, when the new equity issuance indicator is high, the market is usually near its peak and is likely to decline in the future.

Answer 63

Technicians also observe secondary offerings of shares. While these offerings do not increase the number of shares outstanding, they do increase the number of shares available for trading (the free float). Therefore, secondary offerings affect the supply of shares just like IPOs.

Answer 64

Over time, technicians have observed recurring cycles in the markets, only some of which can be logically explained. By identifying different cycles, technicians look to predict the market’s future direction.

Answer 65

Nikolai Kondratieff suggested that economies went through a 54‐year economic cycle. His theory was mainly derived from economic cycles and commodity prices, but similar cycles have also been seen in equity prices during the time of his work.

Answer 66

The 18‐year cycle is usually mentioned in real estate markets though it can also be observed in equities and other markets.

Answer 67

The decennial pattern traces the average annual stock returns (based on the DJIA) according to the last digit of the year. The DJIA has historically performed poorly in years ending with a 0, while the best ones have been years that end with a 5.

Answer 68

Historically, it has been observed that the third year (of the four‐year U.S. Presidential term) boasts the best stock market performance. The stock market has done reasonably well in the fourth year as well. One explanation for this is that politicians up for re‐election inject stimuli into the economy to increase their popularity.

Answer 69

In 1938, R. N. Elliott proposed that the market moves in regular cycles or waves. In a bull market, the market moves up in five waves (called **impulse waves**) in the following pattern: 1 = up, 2 = down, 3 = up, 4 = down, and 5 = up. The impulse wave is followed by a corrective wave that has three components: a = down, b = up, and c = down. The same pattern is reversed in a bear market. (See Figure 4-1.) Elliott also proposed that each wave can be broken into smaller waves. Starting with the largest “grand supercycle,” which takes place over centuries, waves can be broken down into supercycles, cycles, and subcycles which take place over shorter and shorter intervals. Elliott discovered that market waves followed patterns that were ratios of numbers in a **Fibonacci Sequence**. Positive price movements would take prices up by a factor equal to the ratio of a Fibonacci number to its preceding number, while negative price movements would reverse prices by a factor of a Fibonacci number to the next number. He also described the characteristics of each wave.

Answer 70

The Fibonacci Sequence starts with the numbers 0, 1, 1, and then each subsequent number in the sequence is the sum of the two preceding numbers: 0, 1, 1, 2, 3, 5, 8, 13, ...

Answer 71

Elliott Wave Theory is used along with Dow Theory, trend analysis, pattern analysis, and oscillator analysis to forecast market movements. Its biggest advantage is that it can be applied in short‐term trading as well as long‐term economic analysis.

Answer 72

Intermarket analysis refers to the technique of combining analysis of different markets to identify trends and reversals of trends. It is based on the principle that markets for different categories of securities (stocks, bonds, currencies, commodities, etc.) are interrelated and influence each other, and asserts that these relationships are strengthening with increasing globalization.

Answer 73

- Stock prices and bond prices tend to move in the same direction. Therefore, rising bond prices are a positive for stocks.   - Declining bond prices are a signal of commodity prices possibly rising.   - A strong dollar usually results in lower commodity prices. (See Figure 4-2.)  

Answer 74

Technicians often use relative strength analysis to identify **inflection points** in a particular market and then look for a change in trend in a related market.  

Answer 75

Given technical observations regarding the business cycle at any time, relative strength analysis can be used to identify potentially lucrative investments from within the equity market. For example, sectors like utilities and financials tend to perform well during the beginning of an economic cycle, while retailers and consumer durables do well once an economic recovery is well underway.

Answer 76

Intermarket analysis can also be used to identify which countries one should invest in. Countries like Australia, Canada, and South Africa are driven by commodity markets, while others like India and China are primarily reliant on exports, which are driven by GDP growth in the rest of the world.

Answer 77

Technical analysis is a form of security analysis that uses price and volume market data, often graphically displayed.

Answer 78

Technical analysis can be used for any freely traded security in the global market and is used on a wide range of financial instruments, such as equities, bonds, commodity futures, and currency futures.

Answer 79

Technical analysis is the study of market trends or patterns and relies on recognition of patterns that have worked in the past in an attempt to predict future security prices. Technicians believe that market trends and patterns repeat themselves and are somewhat predictable because human behavior tends to repeat itself and is somewhat predictable.

Answer 80

Another tenet of technical analysis is that the market brings together the collective wisdom of multiple participants, weights it according to the size of the trades they make, and allows analysts to understand this collective sentiment. Technical analysis relies on knowledgeable market participants putting this knowledge to work in the market and thereby influencing prices and volume.

Answer 81

Technical analysis and fundamental analysis are equally useful and valid, but they approach the market in different ways. Technical analysis focuses solely on analyzing markets and the trading of financial instruments, whereas fundamental analysis is a much wider ranging field encompassing financial and economic analysis as well as analysis of societal and political trends.

Answer 82

Technical analysis relies primarily on information gathered from market participants that is expressed through the interaction of price and volume. Fundamental analysis relies on information that is external to the market (e.g., economic data, company financial information) in an attempt to evaluate a security’s value relative to its current price.

Answer 83

The usefulness of technical analysis is diminished by any constraints on the security being freely traded, by large outside manipulation of the market, and in illiquid markets.

Answer 84

Charts provide information about past price behavior and provide a basis for inferences about likely future price behavior. Various types of charts can be useful in studying the markets: line charts, bar charts, candlestick charts, and point and figure charts.

Answer 85

Relative strength analysis is based on the ratio of the prices of a security to a benchmark and is used to compare the performance of one asset with the performance of another asset.

Answer 86

Many technicians consider volume information to be very important and watch for the confirmation in volume of a price trend or the divergence of volume from a price trend.

Answer 87

The concept of trend is perhaps the most important aspect of technical analysis. An uptrend is defined as a security making higher highs and higher lows. To draw an uptrend line, a technician draws a line connecting the lows of the price chart. A downtrend is defined as a security making lower highs and lower lows. To draw a downtrend line, a technician draws a line connecting the highs of the price chart.

Answer 88

Support is defined as a low price range in which the price stops declining because of buying activity. It is the opposite of resistance, which is a price range in which price stops rising because of selling activity.

Answer 89

Chart patterns are formations appearing in price charts that create some type of recognizable shape.

Answer 90

Reversal patterns signal the end of a trend. Common reversal patterns are the head and shoulders, the inverse head and shoulders, double tops and bottoms, and triple tops and bottoms.

Answer 91

Continuation patterns indicate that a market trend in place prior to the pattern formation will continue once the pattern is completed. Common continuation patterns are triangles, rectangles, flags, and pennants.

Answer 92

Price-based indicators incorporate information contained in market prices. Common price-based indicators are the moving average and Bollinger Bands.

Answer 93

Momentum oscillator indicators are constructed from price data, but they are calculated so that they fluctuate either between a high and low, typically 0 and 100, or around 0 or 100. Some examples are momentum (or rate of change) oscillators, the RSI, stochastic measures, and MACD.

Answer 94

Sentiment indicators attempt to gauge investor activity for signs of increasing bullishness or bearishness. Sentiment indicators come in two forms—investor polls and calculated statistical indices. Opinion polls to gauge investors’ sentiment toward the equity market are conducted by a variety of services. Commonly used calculated statistical indices are the put/call ratio, the VIX, margin debt, and the short interest ratio.

Answer 95

Flow-of-funds indicators help technicians gauge potential changes in supply and demand for securities. Some commonly used indicators are the ARMS Index (also called the TRIN), margin debt (also a sentiment indicator), mutual fund cash positions, new equity issuance, and secondary equity offerings.

Answer 96

Many technicians use various observed cycles to predict future movements in security prices; these cycles include Kondratieff waves, decennial patterns, and the US presidential cycle.

Answer 97

Elliott Wave Theory is an approach to market forecasting that assumes that markets form repetitive wave patterns, which are themselves composed of smaller and smaller subwaves. The relationships among wave heights are frequently Fibonacci ratios.

Answer 98

Intermarket analysis is based on the principle that all markets are interrelated and influence each other. This approach involves the use of relative strength analysis for different groups of securities (e.g., stocks versus bonds, sectors in an economy, and securities from different countries) to make allocation decisions.

Answer 99

Grand supercycle Supercycle Cycle Primary Intermediate Minor Minute Minuette Subminuette