CFA® Level 1 Exam: True Statements Revealed

True Statements in CFA® Level 1 Exam

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Question

Which of the following statements is true?

Answers

A. Short sales by specialists making up more than 50 percent of total short sales on an exchange is viewed as a bearish sign by technical analysts who try to follow the "smart money." Such an occurrence would be viewed as a long-range indicator of market performance.

B. Short sales by specialists making up more than 50 percent of total short sales on an exchange is viewed as a sign of an approaching market peak by technical analysts who try to follow the "smart money." Such an occurrence would be viewed only as a short-range indicator of market performance.

C. Short sales by specialists making up less than 30 percent of total short sales on an exchange is viewed as a sign of an approaching market trough by technical analysts who try to follow the "smart money." Such an occurrence would be viewed as a long-range indicator of market performance.

D. Short sales by specialists making up less than 30 percent of total short sales on an exchange is viewed as a bullish sign by technical analysts who try to follow the "smart money." Such an occurrence would be viewed only as a short-range indicator of market performance. D

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Explanations

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A. B. C. D.

Explanation

Specialists, who have access to the limit-order books for the stocks in their charge, are often studied by technical analysts trying to follow the "smart money."

When their short sales make up over 50% of total short sales, this is viewed as bearish sign because of the implicit specialist expectation of declining share prices.

When their short sales make up under 30% of total short sales, this is viewed as a bullish sign because of their implicit attempts to stay away from short sales.

Specialist short sales typically make up 40% of total short sales.

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