Fundamental of investing 13th edition case problem 9.2

Deb Takes Measure of the Market

Several months ago, Deb Forrester received a substantial sum of money from the estate of herlate aunt. Deb initially placed the money in a savings account because she was not sure what todo with it. Since then, however, she has taken a course in investments at the local university. Thetextbook for the course was, in fact, this one, and the class just completed this chapter. Excitedabout 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 determinewhether now would be a good time to enter the market.Deb has decided to use all of the following measures to help her determine if now is, indeed,a good time to start putting money into the stock market:

>Advance-decline line

>New highs-newlows indicator (Assume the current 10-day moving average is 0 and the last 10 periods were each 0.)

> Arms index

>Mutual fund cash ratio

Deb goes to the Internet and, after considerable effort, is able to put together the accompa-nying table of data.

Questionsa.

Based on the data presented in the table, calculate a value (where appropriate) for periods 1through 5, for each of the 4 measures listed above. 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 4 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, orshould she wait a while? Explain.

c.

Comment on the time periods used in the table, which are not defined here. What if they wererelatively long intervals of time? What if they were relatively short? Explain how the length ofthe time periods can affect the measures.

Deb takes measure of the market