Technical analysis

Question 1

What are four underlying assumptions of technical analysis?

Question 2

What are three examples of price based indicators?

Answer 2

1. Moving averages,
2. Bollinger bands, and
3. Momentum oscillators
   
   • Relative Strength Index,
   • moving average convergence/divergence lines,
   • rate-of-change oscillators
   • stochastic oscillators.

Question 3

What are four examples of momentum oscillators?

Answer 3

1. Relative Strength Index,
2. moving average convergence/divergence lines,
3. rate-of-change oscillators
4. stochastic oscillators.

Question 4

What is the purpose of using price based indicators?

Answer 4

To identify changes in price trends, as well as “overbought” markets that are likely to decrease in the near term and “oversold” markets that are likely to increase in the near term.

Question 5

What are five examples of sentiment indicators?

Answer 5

1. Opinion polls,
2. Put/call ratio,
3. Volatility index,
4. Margin debt, and
5. Short interest ratio.

Question 6

What are five example of flow of funds indicators?

Answer 6

1. Margin debt,
2. the Arms index,
3. the mutual fund cash position,
4. new equity issuance, and
5. secondary offerings.

Question 7

What is the benefit of using sentiment & flow-of-funds indicators for technical analysis?

Answer 7

Technical analysts often interpret these indicators from a “contrarian” perspective, becoming bearish when investor sentiment is too positive and bullish when investor sentiment is too negative.

Question 8

What are technical analysts views on cycles? What is the Kondratieff wave?

Answer 8

1. Some technical analysts believe market prices move in cycles.
2. Ex: the Kondratieff wave, which is a 54-year cycle, and a 4-year cycle related to U.S. presidential elections.

Question 9

What is the Elliot wave theory?

Answer 9

1. Elliott wave theory suggests that prices exhibit a pattern of five waves in the direction of a trend and three waves counter to the trend.
2. Analysts who employ Elliott wave theory frequently use ratios of the numbers in the Fibonacci sequence to estimate price targets and identify potential support and resistance levels.

Question 10

What is intermarket analysis?

Answer 10

• Examination of the relationships among various asset markets such as stocks, bonds, commodities, and currencies.
• In the asset allocation process, relative strength analysis can be used to identify attractive asset classes and attractive sectors within these classes.