THE DEFINITION AND INTERACTION OF TRENDS

Subjects to Be Covered

The most common types of trends

The basics of peak-and-trough analysis

How peaks and troughs are recognized.

1. Name the three most important and widely used trends.

A. ___________________________

B. ___________________________

C. ___________________________

2. Match the answers for the duration of these trends.

A. Short _______ A. 10 to 25 years

B. Intermediate _______ B. 2 to 6 weeks

C. Primary _______ C. 6 weeks 9 months

D. Secular _______ D. 9 months to 2 years

3. Who needs to have an understanding of the direction and maturity of the main trend?

A. Investors

B. Traders

C. A and B

D. None of the above

4. Peak-and-trough analysis:

A. Is far too simplistic an approach for technicians to deal with

B. Was very useful in Dow's day, but is now outdated by more sophisticated approaches and tools

C. Should be used in conjunction with other tools in the weight of the evidence approach

D. Only works with short-term and intermediate trends

E. C and D

5. In this chart, which letter marks the reversal in the upward progression of troughs?

A. _________________________

B. _________________________

C. _________________________

D. _________________________

6. Can the principles of peak-and-trough progression be applied to a 5- minute bar chart?

A. Yes

B. No

7. In a general sense, why are longer-term trends easier to spot?

A. Because the bigger they are, the easier it is to see them.

B. Because there is less random noise as the trend gets longer. Also, the expectations of market participants tend to unfold in a more gradual way as the fundamentals evolve.

C. Because there are always five intermediate movements in every primary trend, so all you have to do is count to five.

D. None of the above

8. Please look at the chart featuring Citigroup. If you knew that the high and low preceding the rally at A were 6 and 4 and the close at A was 4.25, would this represent a legitimate peak in peak-and-trough analysis?

A. Yes

B. No

9. If C qualifies as a legitimate trough, where is the reversal signal: at D or at the end of the arrow indicated at E?

10. True or false: At B, the series of rising peaks and troughs was reversed.

A. True

B. False

11. What is the most dominant or influential trend?

A. Intermediate

B. Short-term

C. Primary

D. Secular

E. Socular

12. True or false: It's a good idea to go for consistency, but even better to go for perfection.

A. True

B. False

THE DEFINITION AND INTERACTION OF TRENDS

1. Short, intermediate, and primary. Any order qualifies as a correct answer. The secular trend is an important trend, but is not widely followed.

2. A-B; B-C; C-D; and D-A

3. C. Investors need to know the direction of the long-term trend to correctly position themselves for the long-term. Since a short-term contratrend moves often result in weak price movements and numerous whipsaws, short-term traders also need to form an opinion on the direction of the primary trend. A well-known trading rule is always trade in the direction of the trend.

4. C. Peak-and-trough analysis is a basic tool of technical analysis and should never be underrated.

5. C.

6. A. The principles of technical analysis can be applied to any security in any time frame.

7. B. Not only are they easier to spot, but generally speaking, the longer the time span, the more accurate the indicator.

8. B. No, the rally at A did not retrace between one-third and two-thirds of the previous decline.

9. E. Because the series of declining troughs was still intact at D.

10. B. Only the series of rising troughs was reversed at B. The rising peaks were still intact.

11. D. The secular trend determines the characteristics of the primary trend, which determines the characteristic of the intermediate, etc. There is no such thing as the "socular" trend.

12. B. Because perfection can never be achieved in financial markets whose prices are determined by psychology.

FINANCIAL MARKETS AND THE BUSINESS CYCLE

Subjects to Be Covered

The chronological relationship between the financial markets and the business cycle

When they peak and trough in the cycle

Understanding the significance of the leads and lags

The six stages

Double cycles

The role of technical analysis

1. Trends in financial markets are:

A. Determined by investors' expectations of movements in the economy

B. The effect those changes are likely to have on the price of the asset in which a specific financial market deals

C. The psychological attitude of investors to these fundamental factors

D. All of the above

2. Which is the correct chronological sequence for peaks and troughs in the financial markets over the course of the business cycle?

A. Bonds, stocks, commodities

B. Stocks, commodities, bonds

C. Bonds, gold, stocks, commodities

D. None of the above

3. When are commodities most likely to bottom during a recession?

A. When it is particularly severe

B. When the preceding commodity rally has been particularly speculative

C. When stocks bottom earlier than usual

D. Never

4. Why does the nature of price moves in bonds, stocks, and commodities differ between different business cycles?

A. Because they discount different things

B. Because each business cycle...