cmt3 questions b

7/27/2019 Cmt3 Questions b

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Sample

QuestionsforCMT

Level IIIBook 2


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Table of Contents

1 = ETHICS (30 Points)2 = POINT & FIGURE/INTERMARKET ANALYSIS (50 Points)

3 = MARKET BREADTH (35 Points)

4 = CHARTS WITH OSCILLATOR (30 Points)

5 = ELLIOTT WAVE (15 Points)

6 = DOW THEORY CONFIRMATION (15 Points)7 = CANDLESTICK ANALYSIS (40 Points)

8 = SENTIMENT (15 Points)

9 = BEHAVIORAL FINANCE (10 Points)

Note to CMT 3 Candidates:1. You cannot cut and paste from one page to another page.2. Please answer questions completely but briefly.3. Bullet points are acceptable for most answers unless instructed otherwise.4. The point values of the questions tell you how much time you should spend on that question.5. There are charts embedded in this test module. To access the charts click onto the chart box on the

question page.

6. The chart package you will receive is destroyed after you take the exam. The graders do not see anynotes you might have written on the chart booklet. They will only see what is typed on the computer.7. You can navigate through this exam, both forward and backward. Save your answers frequently.8 You are prohibited from discussing this exam Do not disclose any information regarding the content


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QUESTION 1:

Ethics (30 Points)

A. (5 Points)

Sanjay and Rajesh are technical analysts at Kola Investment. Both are CMT charterholders. Sanjay covers

commodities and Rajesh covers stocks. They work in a department with six other technical analysts and about

20 fundamental analysts. Both Sanjay and Rajesh are being considered for the position of Chief Technical

Analyst for their firm. This is a highly desirable situation and both men want this position. Sanjay writes a

report to illustrate his competency and in it he focuses on the use of Elliott Wave (EW). He refers to his use of

EW and the differences between his use of EW and on Rajeshs misuse of EW.

What if any violation has occurred?

Answer:

Violation of Code 4: Members and Affiliates shall not publish or make statements which indefensibly

disparage and discredit the analytical work of others. Sanjay should not have referred to Rajesh use of EW. (5

Points)

B. (5 Points)

Rebecca is a CMT Level 2 candidate studying for her CMT Level 3 examination. She works for Work-a-Day

Commodity Reports Inc. in Chicago, which publishes daily market opinions regarding the equity markets and

weekly opinions for the commodity markets. Yesterday, she had a deadline to publish a report on corn and

other agricultural futures. Due to the nature of the extensive analysis involved and the time constraints placed

on the projects, Rebecca borrowed some verbiage from an article produced by the US Government on plantings.


Answer:


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Alternate answer is that there was a violation of Code 3: Members and Affiliates shall not publish or make

statements concerning the technical position of a security, a market or any of its components or aspects unless

such statements are reasonable and consistent in light of the available evidence and of the accumulated

knowledge in the field of financial technical analysis. New methods of technical analysis and modifications ofexisting concepts and techniques shall be fully documented as to procedure and rationale. Proprietary methods

shall not be infringed, but this standard shall be a guide in the creation of proprietary products. (5 Points)

D. (5 Points)

John and Jeff are trading partners at Mac Trade. They both are CMT charterholders. John says to Jeff; I hear

that Mr. Black is leaving the firm and is being hired by Consolidated Traders. This action could cause a

problem at Mac Trade. Jeff turns to John and asks where he heard that information. John tells Jeff that hissister Coleen was dating Mr. Blacks son and that Blacks son told her about that information. Jeff says, Yeah,

but it is true or just some kids imagination going wild? John answers, Why would he tell Coleen the name of

the new firm if it were just his imagination? John and Jeff buy Consolidated Traders calls and Mac Trade puts

.


Answer:

Violation of Code 5: Members and Affiliates shall not seek, disseminate or act on the basis of material, non-

public (inside) information, if to do so would violate the laws and regulations of any government, governmental

agency or regulatory organization relating to the use of inside information. Both John and Jeff traded on inside

information.(5 Points)

E. (5 Points)Andreas, a CMT, is writing a report on the value of volume in studying the behavior of the CAC 40. He

borrows some information from his friend Jorges study published in an obscure journal about ten years ago.

Jorge died in an auto wreck several years ago Andreas simply forgets to footnote this paragraph


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What, if any, violation has occurred.

Answer:

Members and Affiliates shall keep in confidence knowledge concerning the lawful private affairs of both pastand present clients, employers, and employers clients. Confidentiality! (5 Points)

QUESTION 2: Parts A and B

POINT AND FIGURE/ INTERMARKET ANALYSIS (50 Points)

Charts 1, 2, & 3Part A (P&F Identification) (30 Points)

Part B (Intermarket Analysis) (20 Points)

Charts provided:

1. Antarctic Equity Market Index (Chart 1)2. Antarctic Industrial Metals Index (Chart 2)3. Antarctic Broad Commodity Index (Chart 3)

Editors Note: the numbers on the attached charts indicate the beginning of a calendar month. 1 being January,

2=February, etc. The letters A, B, and C represent October, November, and December. These numbers and the

years listed on the horizontal scale are supplied only in the interest of clarity.

Question 2, Part A (30 Points)

(Charts 1 & 3)

Instructions for A.1. through A.6.


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44.7

Du Plessis states that the anchor point is the row that has the most filled boxes (pg 208). The row at 44.7

has one more filled in box than 44.4. (5 Points)

A.3. (5 points) (Chart 1)On the Antarctic Equity Market Index there is a congestion pattern between August and September 2048.

Using Method 1 (du Plessis) to calculate the horizontal count, what is the target price of this pattern?

Answer:

48.3

(Note this is two boxes above the top of the chart, but the box size is stated to be 0.3, so I dont think this extra

bit of math is a heavy burden). Du Plessis states that one adds the width of the pattern to the anchor point (pg208). (5 Points)

A.4. (5 points) (Chart 3)

On the Antarctic Broad Commodity Index chart, the most recent data shows a short term uptrend. If price

began to decline, at what price level would the trend change to Neutral?

Answer:66.4 (5 Points)

A.5. (5 points) (Chart 3)

On the Antarctic Broad Commodity Index chart there is a congestion pattern between late November 2048 and

January 2049. Using Method 1 (du Plessis) to calculate the horizontal count, what is the anchor point of this

pattern?

Answer:

69.6


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It is February 2049 and you are employed as a portfolio manager at Mariana Trench Asset Management

Company. You are making a presentation to a new client. The client asks whether you expect to be overweight

or underweight equities over the next six months. Your focus is only the equity portion of the account.

B.1. (5 Points) (Charts 1, 2, & 3)Apply your knowledge of Point & Figure charts and intermarket relationships to the three charts provided.

Assume you are in an inflationary economic period. Using only these three charts, determine whether you think

it best to be overweight or underweight the Antarctic Equity Market Index over the next 6 months. Your

answer is a simple Overweight or Underweight.

Answer:

Overweight. (5 Points)

B.2. (15 Points) (Charts 1, 2, & 3)

List three reasons that support your conclusion in B.1 above. A long explanation is not required. Simply state

the facts.

Answer:

The grader may accept any of the quotes listed below or any other relevant quote.

The key to this question is the emphasis on Industrial Metals compared to the Broad Commodity index.

Murphy reviews the intermarket relationships in an inflationary period early in the book. He does not make a

strong statement linking general commodity prices with equity market prices (at least not that I saw in this

section of the book). But on page 41, under the section heading "Bonds Peak Ahead Of Stocks" he begins with

Commodity prices affect the direction of bond prices.

There is no bond price or yield chart included in this question, so the candidate is left to deduce from the

commodity charts what the bond prices are doing. Again on pg 41 Rising bond prices are positive for equity


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That last point is the crucial one. The broad commodity index in our question is rising, so one might

expect bond prices to be falling. However, the Industrial Metals chart is very clearly declining. In a case

where the two disagree, Murphy is clear that one must emphasize the Industrial Metals chart.

With Industrial Metals in a clear downtrend, we must assume that bond prices are rising. Thus,with a six month time horizon, we must assume that equities (which are flat) will benefit from the rising bond

prices. Equities should be over weighted. (5 Points)

QUESTION 3: Parts A, B and C

MARKET BREADTH (35 Points)

Charts 4, 5, & 6

Please note that no credit will be given for an Elliott Wave analysis in this question. Points

shall be awarded only for answers focused on Market Breadth.

Part A (11 Points)

Part B (10 Points)

Part C (14 Points)

Question 3, Part A(11 Points)

(Chart 4)

Analysis of the cumulative advance-decline line Use Chart 4: The S&P 500 with the cumulative NYSE

advance-decline line.

You are a senior technical analyst at a regional broker-dealer. A junior analyst on your team shows you a price

chart of the S&P 500 and has drawn a broadening top pattern (see top of Chart 4) that has been developing since

November 2024 He believes that the S&P 500 is forming a significant top You ask the junior analyst to add


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Answer:

The overall conclusion is that based on the cumulative advance-decline line, market breadth remains strong and

does not support the case for a top in the S&P 500.

1. Based on the advance-decline line market breadth is in a well-defined up trend. While the trend for theS&P 500 is still up, the price action over the last five months is sideways and with higher highs andlower lows (aka broadening formation), the pattern has become more erratic. With well-defined higher

highs and higher lows, the trend for the advance-decline line is stronger than the trend for the S&P 500.

Market breadth is still strong, which does not support the case for the broadening top in the S&P 500. In

fact, market breadth supports the case for the continuation of the uptrend in the S&P 500. (4 Points)

2. Significant tops tend to occur with a negative divergence in the advance-decline line. This is when theadvance-decline does not move to new recovery highs along with the market averages. That is not the

case here. The advance-decline line is confirming the higher highs in the S&P 500 and does not supportthe case for a broadening top. (3 Points)

3. The advance-decline line appears to be forming a higher low relative to the lower lows in the potentialbroadening top pattern for the S&P 500. This suggests that even as the market moved to a new near-term

low, market breadth was strengthening. This is a potential positive divergence that does not support for a

topping process in the S&P 500. (3 Points)

Question 3, Part B(10 Points)

(Chart 5)

Analysis of new 52-week highs and new 52-week lows Use Chart 5: The S&P 500 with the10 day moving

average of NYSE new 52-week highs minus NYSE new 52-week lows.

B.1. (1 Point)

You are a position trader at a hedge fund. Using the chart of the S&P 500 with the 10-day moving average of

NYSE new 52-week highs minus new 52-week lows (Chart 5), would you look to buy or sell the S&P 500?


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day moving average the trend for the S&P 500 remains up with pullbacks within that trend potential buying

opportunities.

1. Oversold or near oversold. (1 Point)2.

The new highs vs. new lows indicator is at or near oversold levels or the most oversold since August2024 and December 2023. Readings toward or below zero on new highs - new lows have indicated anoversold level for the market. Moves toward the zero line or below have been associated with pullbacksto or tests of the rising 200-dma, which has proven to be a key support on the last two marketcorrections and this trend has not changed. Pullbacks within this trend are potential buying opportunitiesfor the S&P 500. (4 Points)

3. The new highs vs. new lows indicator has higher lows in place since late 2023 or an uptrend since late2023. This is confirming the uptrend for the US equity market. An uptrend for new highs - new lows is

confirming the uptrend for the market. In other words, on each of the last three pullbacks, the new highshave been higher relative to new lows using a 10-day moving average. In terms of market breadth, thissuggests breadth is strengthening on each correction. (4 Points)

Question 3, Part C (14 Points)

(Chart 6)

Analysis of short-term breadth and volume indicators Use Chart 6: S&P 500 Index with the 10-day moving

average of NYSE advances vs. NYSE declines and the 10-day moving average of NYSE up volume vs. NYSEdown volume.

You are a short-term trader examining the technical pattern for the S&P 500 using the 10-day moving average

of NYSE advancing issues vs. NYSE declining (breadth indicator) and a 10-day moving average of NYSE up

volume vs. NYSE down volume (volume indicator).

C.1. (1 Point) (Chart 6)The S&P 500 has corrected sharply from the fall 2054 highs. Moving into February 2055 and using the breadth

indicator (10-day moving average of advancing issues vs. declining issues), as a short-term trader would you


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2. Readings into the 0.60 to 0.50 area tend to be oversold readings for the 10-day moving average ofadvances vs. declines. The recent move into this area suggests that decliners have become too highrelative to advancers using the 10-day moving average of advances vs. declines and as such, this pointsto a short-term oversold condition. (4 Points)

C.3. (1 Point) (Chart 6)

Using the 10-day moving average of up volume vs. down volume (volume indicator), does the volume indicator

confirm or diverge from your analysis of the breadth indicator?

Answer:

Confirms (1 Point)

C.4. (4 points)

Is the divergence/confirmation signal for the volume indicator as strong as that seen in the breadth indicator?

Explain.

Answer:

The volume indicator has a positive divergence similar to the breadth indicator and this is a sign of underlying

strength for up vs. down volume and a positive for the US equity market. However, the positive divergence forthe volume indicator is weaker. The positive divergence for the volume indicator only occurs off two lows in

January 2055, while the positive divergence for the breadth indicator occurs off three lows in December 2054

through January 2055. (4 Points)

QUESTION 4: Parts A and B

CHARTS WITH OSCILLATOR (30 Points)

Charts 7 & 8


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A.5. (3 Points) (Chart 7)

Briefly discuss the intermarket implications of ratio line and whether the chart represents a positive or negative

picture for the economy.

Question 4, Part B(15 Points)

(Chart 8)

This question refers to the T-ED Spread chart.

B.1. (2 Points) (Chart 8)

What do the components of the T-ED spread measure?


In the box labeled A, why is the stochastic indicator giving multiple bad sell signals? What can be done to

improve the signals?

B.3. (6 points) (Chart 8)

Provide a spread trade recommendation. Support your analysis using all of the indicators on the chart and give a

short term price target.


What does your analysis of the spread imply about equities and other risk correlated assets?

B.5. (3 Points)(Chart 8)

How can the spread be used to time hedging trades for your risk positions? Provide a hedging example.

Answer:


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Technical observations (1 Point each):

a) Price in an uptrend, making higher highs, higher lows.b) Moving average points up.c) Stochatics points down, but this is a short term play in an uptrend.d) MACD holding its uptrend.

5. Bullish for the economy. Transports are cyclical and leadership shows economic expansion. Leadershipcan indicate weaker oil prices, which is less of a strain on producers and consumers. (3 Points)

4B:

1. This is a quality spread, measuring demand for high quality T-Bills vs. demand for risky Eurodollars. (2Points)

2. The stochastics indicator is giving bad sell signals because the spread is in a strong uptrend which keepsthe momentum indicators overbought for an extended period. The signals from the stochastic can be

improved upon by waiting for confirmation from the MACD indicator. (3 Points)

3. Buy T-Bills, sell Eurodollars. (1 Point)Technical observations (1 Point each)

a) Price has been in a sideways channel and has recently turned up.b) The stochastic is positive and just near overbought territory.c) The MACD has just turned positive.d) The Bollinger bands have been providing support and resistance.e) Immediate short termtarget is the upper band at 0.17

4. The rising spread is a negative indication for risk assets. (1 Point)5 When the spread is in an uptrend put hedges on remove when spread turns down (2 Points)


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Identify the primary degree waves from the low at 3.05 to the end of the chart and explain your reasoning for your labels

including any Fibonacci calculations used.

Answer:

A. Identify the primary degree waves from the low at 3.05 to the end of the chart and explain your reasoning for

your labels including any Fibonacci calculations used. (8 Points)

W(1) 3.05-11.00, w1 of the five sub-waves is not clear on the weekly chart. (1 Point)

W(2) 11.00-7.37, a-b-c three wave pattern retracing between .382 and .5 of W(1) and into the area of the end of

the w4 of lesser degree. (1 Point)

W(3) 7.37-20.84, W(3) divides into five waves with w1 the shortest and w5 the longest, W(3) slightly exceeded

1.618 times the length of W(1). (1 Point)

W(4) 20.84-15.25, simple a-b-c, retraced into the area of the previous w4 of lesser degree, length slightly

exceeded a .382 retracement of W(3) and is equal in length to .618 times the length of W(2). (1 Point)

W(5) 15.25-37-65, W(5) is extended and w5 of W(5) is extended. (1 Point)

W(A) 37.65-23.35, simple 3-3-5, a-b-c down. (1 Point)

W(B) 23.35-29.06, simple 3-3-5, a-b-c up, retracing .382 of W(A). (1 Point)

W(C) 29.06- ?, incomplete five wave pattern, currently in w5 of W(C). 1


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Length of W(C) equals W(A) at 14.76. (1 Point) Within W(C), the length of w5 equals the distance from the beginning of W(C) to the end

of w3 of W(C) at 16.02. (1 Point)

QUESTION 6

DOW THEORY CONFIRMATION (15 Points)

Charts 10, 11, 12, & 13

A. (3 Points) (Chart 10 & 11)

Explain if the DJIA movement in the 2nd half of 2007was confirmed by other indices and by volume?

Answer:

1. The DJIA movement was not confirmed by DJTA and Russell 2000 because DJTA and Russell 2000 didnot confirm the higher high in DJIA. (1 Point)

2. It was confirmed by volume. The trend was turning bearish; a Head-and-Shoulders pattern was formedin this period, with its completion at the end of year, volume increased with price breaking the neckline.(2 Points)

It was also confirmed by volume. The trend was turning bearish; a Head-and-Shoulders pattern was

formed in this period, with its completion at the end of year, volume increased with price breaking the

neckline. (2 Points)

B. (8 Points) (Chart 10 & 11)

Explain, using confirmation from various technical indices and indicators provided on the chart, why the DJIA


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6. Slow stochastics barely reached oversold level in September 2008 and had been between 20 and 50 for along time thereafter, which meant the price decrease had not reached to the end. Then with the %K

crossing over %D at oversold level in March 2009, the bull trend had become apparent. (1 Points)

C. (4 Points) (Chart 12 & 13)

Compare the chart of the Dow Jones Industrial Average and the Dow Jones Transportation Average

March 2009 low with the July 2011 low. What are these charts telling you? Use all available information provided to you

on the chart.

Keep your answers brief. Answers should include analysis of all the technical indicators and

Price/volume data provided on the charts.

Answer:

There are differences when you look at the two charts. While they agree and confirm on the direction there are

differences in the volume which should be noted as well as differences in the MA crossovers. Looking at

todays volume in the INDU it is less than the volume seen in 2009 while the TRAN volume is at the same

levels for bother periods of time. Also the cross over time difference should be noted. The MACD did confirm

for both averages. Yes, these charts show confirmation but with differences that should be noted. (4 Points)

Price & Volume: Both DJIA and DJTA dropped rapidly with huge volume after forming a double-top in July

2011, so it looked very bearish.

RSI: RSI on both indices were decreasing but had not reached oversold levels; this is an indicator to watch

closely in the near future.

MA 50 & MA 200: The 200 day MA for both DJIA and DJTA were decreasing, however; the 200 day MA on

the weekly chart is a long term perspective (almost five years) which included the 2008 collapse and was one ofthe key reasons of the descending trend. The 50 day MA (covering about a one-year period) began to increase in

the third quarter of 2009 for both and crossed over the 200 day MA in Q1 of 2011 and Q4 of 2010, respectively.


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Editors Note: There are a variety of components and exhibits to this question as outlined below. Be sure

you are referring to the correct charts before you begin your analysis.

Charts Provided:

1. Exhibit 7.1 of General Electric (GE) (Chart 14)2. Exhibit 7.2 of the 10-Year US Treasury Yield Index(TNX) (Chart 15)3. Exhibit 7.3 of the CBOE Jumbo Volatility Index(VIX) (Chart 16)4. Exhibit 7.4 of a popular Gold ETF(GLD) (Chart 17)5. Exhibit 7.5 of a popular BrazilianETF (EWZ) (Chart 18)

You are interviewing for a position as a key contributor to a leading technical newsletter that has a worldwide

distribution network of predominantly retail clients. The job description requires the ability to provide clearand concise commentary of technical conditions and trade set-ups of a variety of financial instruments. During

the interview, you are asked to show your expertise in candlestick analysis. You are given a series of

candlestick charts coupled with a variety of momentum and moving average based indicators. Use only the

provided information in the charts in your analysis.

A. (6 Points) (Chart 14)

Examine the circled portion on the chart (GE). Name the candlestick pattern that has formed over the two-day

period. Is this pattern bullish or bearish? Does the provided RSI indicator support or contradict what the

pattern is suggesting? Has the candlestick pattern been confirmed? If so, provide evidence from the chart. If

not, explain your rationale.

Answer:

Dark Cloud Cover. Bearish Reversal Pattern. RSI confirms this short-term analysis, since it has just come off

of a high on the indicator, and the RSI lines are now trending down. The recent price action breaking both the

20 and 50 day SMAs has confirmed the validity of the pattern. (6 Points)


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Answer:

Harami. This is a bearish pattern, and shows signs of a pending reversal. The provided Williams %R

indicators scale is inverted from RSI and Stochastic indicators. Therefore, the indicator confirms the potential

for a short-term bearish move. The Bollinger Bands also show an increase in volatility and an upside breakout

of the bands (extreme) could increase the possibility of a reversion to the mean. Thus based on the evidenceprovided in the chart, it is more likely that the price will fall at least to the 20 day SMA (the median point of the

bands). (6 Points)

D. (6 Points) (Chart 17)

What is the most recent candlestick pattern that has formed (GLD)? Is this pattern suggestive of a continuation

or a reversal in trend? How do the provided indicators factor into your analysis?

Answer:

Bearish Engulfing. This is a short-term bearish pattern. However, price has not yet confirmed a breaking of the

20 day EMA to the downside. Volume has been trending down in the last weeks price uptrend, and has just

increased on the most recent bearish candle. The Stochastic indicator has peaked above 80, and is now

reversing. So, a short term downtrend is most probable from the evidence provided, and would be confirmed if

the 20 EMA is broken. It appears there is recent support at the 130 price area. (6 Points)E. (6 Points) (Chart 18)

Six months ago, the technical newsletter you are interviewing for published a bullish outlook on EWZ. Name

and discuss the most recent candlestick formation in light of the other indicators present on the chart. What is

your recommendation to a client who followed the bullish recommendation of the newsletter six months ago?

Answer:

A dragonfly doji has just formed on the 200-day SMA, signifying possible support at $63.69. The candle

appears after a 1-month downtrend, suggesting the possibility of a bullish reversal. However, ADX is

continuing to show an increase in the strength of the current downtrend The ATR suggests that sell stops be


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G. (3 Points)

A copper producing company is trying to determine if it should hedge against additional declines in the copper

market. For the past 6-weeks copper prices have not only been volatile, but also trending down. Todays closeshows that the price of copper gapped down. On a candlestick chart, what would this be called? According to

Nison, how would traditional Japanese technicians interpret this event?

Answer:

"Low-price gapping play" is the correct answer. This is certainly not bullish. (3 Points)

H. (3 Points)The newsletter interviewing team is trying to determine your ability to translate back and forth between Western

patterns its readers are more familiar with, and also the correct Japanese Candlestick equivalent. According to

your assigned readings in Nisons text, what are the candlestick equivalents of the following Western Patterns?

Head and Shoulders Bottom Triple Top Rounded Bottom

Answer:(1) Inverted 3 Buddha (Top) OR Modified Three River Pattern

(2) Three Mountain Tops,

(3) Frying Pan Bottom

(3 Points)

QUESTION 8

SENTIMENT (15 Points)

Charts 19, 20, & 21


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The current reading shows that ~65% of newsletter writers, surveyed by Investors Intelligence are bullish. (1

Point)

Historical stock returns are low once this survey reaches an optimistic extreme and reverses as it has in chart

8B. (2 Points)

C. (3 Points) (Chart 21)

Analyze chart 21. What does the VIX measure? What does the current reading suggest about future stock

returns?

Answer:

The VIX measures the volatility implied by options traders in their pricing of S&P 500 options in the market

place. (1 Point)VIX reached a low and reversed several months ago. Volatility is rising but is still far below levels seen in past

sharp declines. Based on history, VIX could move higher leading to further declines. (2 Points)

D. (6 Points)

Would you recommend that the CIO increase equity exposure, decrease equity exposure, or leave the current

equity allocation unchanged based on your analysis of the three charts? Why?

Answer:

Analyst should recommend that the CIO decrease equity exposure. (2 Points)

All three sentiment indicators were showing extreme levels of optimism. Whenever the nonprofessional (as

measured by the three sentiment indicators) investor becomes one-sided in their expectations about the future

course of stock prices, the market will move in the direction opposite that which is anticipated by the masses.

With all three indicators reaching extremes and then reversing, the technician can be more confident in his

recommendation to the CIO to decrease equity exposure. (4 Points)


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B. (5 points)

In a famous 1996 speech, Alan Greenspan posed this rhetorical question: "But how do we know when irrational

exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged

contractions as they have in Japan over the past decade?" He then added that "We as central bankers need not

be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production,jobs and price stability."

Does Professor Shiller agree with this assertion that central banks should not concern themselves with

speculative bubbles? Why?

Answer:

No Professor Shiller does not agree with this assertion. (1 Point)He states that a small, but symbolic, increase in interest rates by monetary authorities at a time when markets

are perceived by them to be overpriced is a useful step, if the increase is accompanied by a public statement that

it is intended to restrain speculation. (4 Points)

Source: Irrational Exuberance, Chapter 12, pg 224


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Chart #1Antarctic Equity Market Index

Daily Point & Figure (h/l) 0.3 x 1

20482049


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2047 2048 2049

Chart #2Antarctic Industrial Metals Index

Daily Point & Figure (h/l) 1 x 1


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2048 2049

Chart #3Antarctic Broad Commodity Index

0.80 points per box: 1 box reversal


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Chart #4


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Chart #5


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Chart #6

285

295

305

315

325

335

345

355

365

375

May-54

Jun-54

Jul-54

Aug-54

Sep-54

Oct-54

Nov-54

Dec-54

Jan-55

Feb-55

Mar-55

S&P 500 Index

0.300.400.500.600.700.800.901.001.101.201.30

1.401.501.601.701.80

May-54

Jun-54

Jul-54

Aug-54

Sep-54

Oct-54

Nov-54

Dec-54

Jan-55

Feb-55

10-day moving average of NYSE advances vs. NYSE declines

0.30

0.80

1.30

1.80

2.30

2.803.30

3.80

4.30

4.80

May-54

Jun-54

Jul-54

Aug-54

Sep-54

Oct-54

Nov-54

Dec-54

Jan-55

Feb-55

Mar-55

10-day moving average of NYSE up volume vs.NYSE down volume


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Chart #7


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Chart #8


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Chart #9


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Chart #10


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Chart #11


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Chart #12


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Chart #13


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Chart #14

Exhibit 7.1


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Chart #15


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Chart #16


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Chart #17


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Chart #18


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Chart #19


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Chart #20


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Chart #21


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Chart #22

cmt3 questions b

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