Section III.D.

Question 1

What are Technical Indicators?

Answer 1

Defined
* indicators track the change in price and/or volume and measure flow, trends, volatility, and momentum
* tools used in technical analysis that attempt to discern when a stock is being purchased at higher prices (accumulation) or sold at lower
prices (distribution)
* used to generate buy and sell signals

Question 2

What is a “Pattern”?

Answer 2

Question 3

Explain Dow Theory and Moving Averages

Answer 3

Moving Average Defined:
“A moving average is the average of the closing price of a security over a specified number of periods. Moving averages smooth out short term price fluctuations…” (CIMA text)

Question 4

What is a Bullish Signal? Bearish Signal?

Answer 4

+Bullish signal: Market price breaks through the moving average line from below, it is time to buy

-Bearish signal: When prices fall below the moving average, it is time to sell

Question 5

What A Golden Cross?

Answer 5

shorter term average moves up and
through a longer term average;

typically cited is the 50 day moving average coming up through the 200
day moving average, but it’s also common to see the 15 day moving average crossing the 50 day moving average referenced along with others.

Question 6

What is a Dead Cross?

Answer 6

shorter term average moves down
and through a longer term average

Question 7

What is Dow Theory?

Answer 7

a momentum indicator theory that claims a market is in an uptrend (will go higher) if one of its averages advances above a previous important high and is accompanied or followed
by a similar advance in the other

Question 8

What are the 3 movements of Dow Theory?

Answer 8

• 3 Movements
  Primary trend
  Secondary reaction
  Daily fluctuations

Question 9

Criticism of Dow Theory?

Answer 9

• Criticism

Current reflection Not an accurate predictor

Limited to Dow industrial and transports indices

More helpful for seeing big picture (not short term bets)

Question 10

Dow Theory - Buy Signal?

Answer 10

Question 11

Dow Theory - Sell Signal?

Answer 11

Question 12

What are Momentum Indicators?

Answer 12

Defined
* momentum indicators that fall within a bounded range

• tools used in technical analysis that attempt to determine trends in security price movements by measuring the rate of change in a security’s price
• oscillators, usually based on recent moving average prices, also help to provide entry and exit trading points

Question 13

What is “relative strength”?

Answer 13

Question 14

What is “relative strength” - Breadth?

Answer 14

Breadth
Often measured as the spread between the number of stocks that
advance and decline in price

Question 15

What is “Trin Statistic” as it relates to Technical Analysis: Sentiment Indicators?

Answer 15

“Short-term trading index”

• Ratio above 1 is bearish

Question 16

Technical Analysis: Sentiment Indicators as it relates to Put/Call Ratio?

Answer 16

Question 17

What is Moving Average
Convergence/Divergence (MACD)?

Answer 17

• Momentum based indicator
• Is the difference between a short term and long term moving average of the price of the security

Question 18

Examples of Price-Based Indicators?

Answer 18

• Moving averages
  – Golden cross
  – Dead cross
• Bollinger bands

Question 19

What is Convergence?

Answer 19

Convergence
: when the oscillator (indicator) moves in the same manner as the security being analyzed

Question 20

What is Divergence?

Answer 20

Divergence
: when the oscillator (indicator)
moves differently from the security

Question 21

Which Asset Allocation Strategy is used in Technical Analysis?

Answer 21

Question 22

What is Tactical Asset Allocation?

Answer 22

• similar to strategic asset allocation, tactical asset allocation allows for a more active investment approaching including the concept of market timing
• example: the portfolio manager may attempt to take advantage of asset class or sector price anomalies or mispricing through reallocation and
  rebalancing

Question 23

What does techinical Asset Allocation Rely on and offers an opportunity for what?

Answer 23

• TAA relies on the investor (or advisor) to make tactical, short term decisions, to help manage risk.
• TAA offers a greater opportunity for risk management and better risk adjusted returns but there is no guarantee.
• TAA carries an implicit risk of opportunity cost compared to SAA if one experiences poor results.

Question 24

What is Dynamic Asset Allocation?

Answer 24

• used to describe several asset allocation methodologies
• commonly refers to an asset allocation strategy that maintains equity exposure but also protects
  against loss of capital
• example: CPPI constant proportion portfolio insurance

Question 25

Dynamic Asset Allocation offers what?

Answer 25

• DAA offers more opportunity for risk
  management than SAA and a more tightly defined methodology compared to TAA.
• specific forms of risk management
  -example: constant proportion portfolio insurance (CPPI)