CFA® Level 1 Exam: Contrary-Opinion and Smart Money Technicians

Contrary-Opinion and Smart Money Technicians

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Question

Which of the following statements about contrary-opinion and smart money technicians is INCORRECT?

Answers

A. When margin balances in brokerages accounts increase, contrary-opinion technicians are bearish.

B. The investment advisory ratio is at 0.65. Contrary-opinion technicians are bullish.

C. The OTC volume is less than 87% of the NYSE volume. Investors are bearish.

D. A narrowing of the T-bill - Eurodollar futures spread is a signal for a smart-money technician to buy. A

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Explanations

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A. B. C. D.

Explanation

Although an increase in margin (debit) balances in brokerages accounts means investors are bullish, it is not an indicator used by contrary-opinion technicians.

This would be a bullish sign to smart-money technicians.

The other statements are correct. When the investment advisory ratio (bearish opinions/total opinions) is equal to or greater than 0.60, it means that investors are bearish, and contrary-opinion technicians are bullish. Investors are considered bullish if the OTC volume is greater than 112% of the NYSE volume.

Summary of the indicators for contrary-opinion and smart money technicians:

Contrary-opinion technicians (trade the opposite of the mass of general investor):

Smart-money technicians (follow the professional investors):

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