Technical Analysis on the Series 7 Exam
The two main types of securities analysts are fundamental analysts, who examine the specifics of corporations, and technical analysts, who follow the market to determine the best time to buy or sell.
Technical analysts would be most interested in which of the following?
A. corporate balance sheets
B. the unemployment rate
C. the trading volume on the NASDAQ OMX PHLX
D. corporate profits
Answer: C. the trading volume on the NASDAQ OMX PHLX
Technical analysts follow the market to determine when to buy or sell securities. One of the things that they look at is trading volumes.
Which of the following technical market theories is based on the belief that small investors usually buy and sell at the wrong time?
A. random walk theory
B. odd-lot theory
C. short interest theory
D. modern portfolio theory
Answer: B. odd-lot theory
Smaller investors are more likely to engage in odd-lot trading (trading for less than 100 shares). Investors who subscribe to the odd-lot theory believe that by the time smaller investors get their information and execute trades, it’s too late. Therefore, believers in the odd-lot theory buy when smaller investors are selling and sell when smaller investors are buying.
Which of the following would a technical analyst use to determine whether a security is a good investment?
A. the price earnings ratio
B. balance sheets
C. income statements
D. trend lines
Answer: D. trend lines
Technical analysts look at the market and decide when to buy. Technical analysts look at things like trend lines, trading volume, and short interest. Fundamental analysts look at things like the price earnings ratio, income statements, and balance sheets.