Contrary-Opinion Rule Technical Analysis | CFA Level 1 Exam Prep

Contrary-Opinion Rule Technical Analysis

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Question

Contrary-opinion rule technical analysts would consider

Answers

A. a high AMEX volume to NYSE volume ratio to be a sign that the market is approaching a trough. This ratio is a measure of investor confidence in the economy. A high value indicates that investors have enough confidence to invest in the relatively volatile AMEX. Recovering confidence indicates the approach of a market trough.

B. a high AMEX volume to NYSE volume ratio to be a sign that the market is overbought. This ratio is a measure of speculative trading activity. A high value indicates a high level of speculation, which itself is thought to indicate a market peak.

C. a high NASDAQ volume to NYSE volume ratio to be a sign that the market is overbought. This ratio is a measure of speculative trading activity. A high value indicates a high level of speculation, which itself is thought to indicate a market peak.

D. a high NASDAQ volume to NYSE volume ratio to be a sign that the market is approaching a trough. This ratio is a measure of investor confidence in the economy. A high value indicates that investors have enough confidence to invest in the relatively volatile NASDAQ. Recovering confidence indicates the approach of a market trough. C

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Explanations

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A. B. C. D.

Explanation

Prior to the 1970s, the measure of speculative activity was typically the ratio of AMEX volume to NYSE volume. But because of the decline in importance of the

AMEX, this ratio is no longer a useful measure. The new measure of speculative activity is the ratio of NASDAQ volume to NYSE volume. A high ratio is indicative of a high level of speculative activity, which is believed by contrary-opinion rule technical analysts to be a sign of an overbought market, and of an approaching market peak.

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