P9.12 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 five 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 at the top of page 357. 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 five 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 Jones 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 Volume down 600,000,000 836,254,123 263,745,877 275,637,497 824,362,503 875,365,980 424,634,020 1,159,534,297 313,365,599 Mutual fund cash (trillions $0.31 $0.32 $0.47 $0.61 $0.74 of dollars) Total assets managed $6.94 $6.40 $6.78 $6.73 $7.42 (trillions of dollars) 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 Technical analysis looks at the demand and supply for securities based on trading volumes and price studies. Charting is a common method used to identify and project price trends in a secu- rity. A well-known technical indicator is the Bollinger Band. It creates two bands, one above and one below, the price performance of a stock. The upper band is a resistance level and represents the level above which the stock is unlikely to rise. The bottom forms a support level and shows the price that a stock is unlikely to fall below. According to technicians, if you see a significant "break" in the upper band, the expectation is that the stock price will fall in the immediate future. A "break" in the lower band signals that the security is about to rise in value. Either of these occurrences will dictate a unique investment strategy. Replicate the following technical analysis for Amazon.com (AMZN) Go to www.moneycentral.msn.com Symbol(s): AMZN In the left-hand column, click on "Charts." You need to update to MSN Money Deluxe if you have not already done so. If download was required, fill in the Symbol box with "AMZN." A one-year chart appears by default. Click on "Analysis." Click on "Price Indicators." Choose "Bollinger Bands." The price performance graph for Amazon stock with an upper and lower red Bollinger Band should appear. Make sure that the graph covers, at a minimum, the months of June through December 2009. Questions

a. On approximately July 7, 2009, what happened to the upper band (resistance level) of Amazon stock?

b. During the following nine days, how did the price of the stock behave?

c. Is this in line with what a technician would predict?

d. What strategy would a technician have undertaken on the seventh of July?

c. On approximately November 18, 2009, what happened to the lower band (support level) of Amazon stock?

f. During the following 10 days, how did the price of the stock behave? g. Is this in line with what a technician would predict? h. What strategy would a technician have undertaken on the eighteenth of November?