Which of the following represents a "contrary opinion" technical indicator? Choose the best answer.
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A. B. C. D. E. F.Explanation
Of all the choices listed, only "OTC versus NYSE volume" 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.
The measure of OTC to NYSE volume is used by contrarian technical analysts as a measure of speculation in the U.S. securities markets. A high degree of OTC volume is viewed as a bearish signal to contrarian technical analysts, who believe this is indicative of abounding speculation. Prior to the collapse of the NASDAQ in 2000, the OTC to NYSE volume experienced a marked spike, and many contrarian technical analysts were vocal in their opinion that the degree of speculation in the securities markets was rampant. While for years the explicit level of OTC to NYSE volume was used, recently it has been decided that the proper method is to examine trends in the OTC to NYSE volume, rather than static figures.
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.