CFA Level 1: Contrary-Opinion and Smart-Money Techniques

Contrary-Opinion and Smart-Money Techniques

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Question

Jay Crewson, equity analyst at a large investment bank, formerly worked with a group of contrary-opinion technician traders who traded exclusively using contrary indicators. He was recently transferred to support a group of smart-money technicians. Since he is still adjusting to the "new" rules, he asks Richard Ruscoe, another analyst in the group, to review his work. Ruscoe reviews Crewson's latest recommendation list and points out that one of the statements is incorrect.

Which of the following is the INCORRECT statement? Buy:

Answers

A. debit balances in brokerage accounts increased.

B. the ratio of short sales by specialists to total NYSE short sales fell below 0.30.

C. investor credit balances in brokerage accounts increased.

D. the yield-differential between high quality and lower-quality bonds decreased to 90 basis points.

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Explanations

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A. B. C. D.

Increased investor credit balances in brokerage accounts (indicating a bearish trend) are a bullish sign to contrary-opinion technicians. The other statements are true and are indicators used by smart-money technicians. When the yield-differential between high quality and lower-quality bonds narrows (or decreases), it indicates that the confidence index has increased and smart-money technicians are bullish.

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