Sentiment and Market Strenght

Question 1

Contrarian indicators

Answer 1

• Put/Call ratio
• Volatility
• Implied Volatility
• Climax

Question 2

Volume and ratio for options on the CBOE

Answer 2

Available on cboe.com

Question 3

High implied volatility tends to happen at a panic bottom

Answer 3

Is a buy signal

Question 4

Index volatility tickers

Answer 4

• VIX - S&P 500 options
• VXN - Nasdaq Composite
• VXO - S&P 100

Question 5

Implied volatility to realized volatility (Ned Davis research)

Answer 5

• Over 1 - the S&P 500 declined on average 55.9% per annum
• Below -1 - the S&P 500 advanced on average 140.5% per annum

Question 6

Sell signal versus buy signal lags in contrarian investing

Answer 6

• Buy signals - coincident
• Sell signals - lag
• Optimism develops slowly and often continues for longer than expected, whereas panic is usually quick and steep, providing a price bottom quickly and more clearly

Question 7

Commitment of Traders (COT)

Answer 7

Data on hedge funds and large investors positions

Question 8

• Large speculators sentiment
• Large hedgers sentiment

Answer 8

• Price continuation indicator
• Contrarian indicator (weak)

Question 9

Hedgers tend to lag and follow the trend

Answer 9

Large speculators have a better record of anticipating market moves

Question 10

The technical analyst primary focus

Answer 10

Look for confirmation of divergence

Question 11

Rate of change (ROC)

Answer 11

Ratio between today’s closing price and the closing price at some specified time in the past

Question 12

Reversal (divergence)

• Positive reversal
• Negative reversal

Answer 12

• When the indicator reaches a second low that is not confirmed by another new low in prices
• When the indicator reaches a second high that is not confirmed by another new high in prices

Question 13

Breadth of the stock market

Answer 13

Is quantified by the advance/decline data

Question 14

The Breadth Line or Advance-Decline line

Answer 14

Breadth Line Value_T = (# of advancing stocks_T - # of declining stocks_T) + breadth line value_{T - 1}

Question 15

McClellan Oscillator (momentum)

Answer 15

• Ratio Adjusted Net Advances (RANA): (Advances - Declines)/(Advances + Declines)
• McClellan Oscillator: 19-day EMA of RANA - 39-day EMA of RANA
• 19-day EMA* = (Current Day RANA - Prior Day EMA) * .10 + Prior Day EMA)
• 39-day EMA* = (Current Day RANA - Prior Day EMA) * .05 + Prior Day EMA)
• * The first EMA calculation is a simple average.

Question 16

Plurality Index

Answer 16

The 25 days sum of the absolute difference between advances and declines

Question 17

A thrust signal

Answer 17

Occurs when an oscillator noticeably exceeds its boundaries and rises or falls by a larger amount than usual

Question 18

Arm Index

Answer 18

(# of advancing stocks / # of declining stocks) / (up volume/down volume)

Question 19

When a large amount of volume in declining stock occurs

Answer 19

the market is likely at or close to a bottom

Question 20

New highs/lows

Answer 20

Based on a 52 weeks trading period

Question 21

High Low Logic Index

Answer 21

Defined as the lesser of

• the number of weekly new highs to total issues or
• the number of weekly new lows to total issues

Question 22

200-day moving average strategy

Answer 22

• If the market is above its 200-day moving average and is in an uptrend, buy the new 10-day low
• If the market is below its 200-day moving average and is in a downtrend, sell the new 10-day high