Which of the following represents a "contrary opinion" technical indicator? Choose the best answer.
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A. B. C. D. E. F.E
Of the choices listed, only the "CBOE Put/Call Ratio" represents a contrarian technical indicator. While "debit balances in brokerage accounts (margin debt)" appears to be an appealing choice, this indicator is actually a measure of "smart money" because investors who leverage their portfolios through margin loans are viewed by technical analysts as being sophisticated.
Technical analysts often examine the opinions of market participants, including future and options traders, for indications of the overall sentiment of securities prices and the direction of impending market movements. Believing that the majority of these market participants will be inaccurate in their forecasts, particularly near market peaks and troughs, contrary opinion technical analysts will take a contra approach.
When the ratio of puts to calls is high, indicating a high degree of bearishness amongst options traders, contrary opinion technical analysts would look for an upward move in securities prices. Conversely, contrary opinion technical analysts would view a low put/call ratio as a bearish signal.
The Confidence Index, a "smart money" technical indicator, is a measure of yield spreads between highgrade corporate bonds and the yields on average corporate bonds. The Diffusion Index measures the breadth of the market, and is found by taking the total volume of advancing shares plus one-half of the issues unchanged, divided by the total number of issues traded. The T-Bill-Eurodollar Yield Spread is another example of a "smart money" technical indicator.