CFA Practice Question

CFA Practice Question

Which of the following represents a "smart money" technical indicator?
A. Breadth of market.
B. Futures traders bullish on stock index futures.
C. Debit balances in brokerage accounts.
Explanation: Of the choices listed, only "debit balances in brokerage accounts" is a smart money technical indicator. Technical analysts view investors who leverage their portfolios through margin loans as being sophisticated. So said, technical analysts see an increase in debit balances, i.e. an increase in margin borrowing, as a bullish signal. Conversely, technical analysts would view a decline in margin borrowing as a bearish sign. While this viewpoint is somewhat counter intuitive, the degree to which technical analysts use aggregate margin debit balances to track the "smart money" is high.

"Breadth of market" refers to the measure of advancing versus declining issues. Tthe sentiment of futures traders is used by contrarian technical analysts, who take a contra approach.

User Contributed Comments 0

You need to log in first to add your comment.