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Several months ago, Deb Forrester received a subst...




Several months ago, Deb Forrester received a substantial sum of money from the estate of her late aunt. Deb initially placed the money in a savings account because she was not sure what to do with it. Since then, however, she has taken a course in investments at the local university. The textbook for the course was, in fact, this one, and the class just completed Chapter 9. Excited about what she has learned in class, Deb has decided that she definitely wants to invest in stocks. But before she does, she wants to use her newfound knowledge in technical analysis to determine whether now would be a good time to enter the market. Deb has decided to use all 5 of the following measures to help her determine if now is, indeed, a good time to start putting money into the stock market: ? Dow theory ? Advance-decline line ? New highs-new lows (NH-NL) indicator (Assume the current 10-day moving average is zero and the last 10 periods were each zero.) ? Arms index ? Mutual fund cash ratio Deb goes to the Internet and, after considerable effort, is able to put together the table of data as seen below. Questions a. Based on the data presented in the table, calculate a value (where appropriate) for periods 1 through 5, for each of the five measures listed above. (Hint: There are no values to compute for the Dow theory; just plot the averages.) Chart your results, where applicable. b. Discuss each measure individually and note what it indicates for the market, as it now stands. Taken collectively, what do these 5 measures indicate about the current state of the market? According to these measures, is this a good time for Deb to consider getting into the market, or should she wait a while? Explain. c. Comment on the time periods used in the table, which are not defined here. What if they were relatively long intervals of time? What if they were relatively short? Explain how the length of the time periods can affect the measures. Period 1 Period 2 Period 3 Period 4 Period 5 Dow Industrial Average 8,300 7,250 8,000 9,000 9,400 Dow Transportation Average 2,375 2,000 2,000 2,850 3,250 New highs 68 85 85 120 200 New lows 75 60 80 75 20 Volume up 600,000,000 6,254,123 275,637,497 875,365,980 1,159,534,297 Volume down 600,000,000 263,745,877 824,362,503 424,634,020 313,365,599 Mutual fund cash (trillions of dollars) $0.31 $0.32 $0.47 $0.61 $0.74 Total assets managed (trillions of dollars) $6.94 $6.40 $6.78 $6.73 $7.42 Advancing issues (NYSE) 1,120 1,278 1,270 1,916 1,929 Declining issues (NYSE) 2,130 1,972 1,980 1,334 1,321


Paper#7255 | Written in 18-Jul-2015

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