CMT CMT Market Cycles 2 — Questions and Answers
Question 1: The Hurst Cycle model primarily focuses on identifying:
- Fundamental earnings drivers of stock prices
- Nested cycles of varying periodicity in price data (Correct answer)
- Sentiment-driven crowd behavior patterns
- Dividend yield cycles and interest rate relationships
Correct answer: Nested cycles of varying periodicity in price data
J.M. Hurst's cycle model identifies nested cycles of different lengths in price data, using the principle that cycles are harmonically related and synchronize at troughs.
Question 2: In market cycle analysis, the 'four-year cycle' in US equities is most associated with:
- The Federal Reserve interest rate cycle
- The presidential/business cycle (Correct answer)
- The commodity super-cycle
- The technology innovation cycle
Correct answer: The presidential/business cycle
The four-year US equity cycle is closely associated with the presidential and business cycle, driven by policy stimulus and economic expansion and contraction rhythms.
Question 3: According to Dow Theory, what is required for a primary trend signal in equities to be considered confirmed?
- Only the Dow Jones Industrial Average must make a new high or low
- Both the DJIA and the Dow Jones Transportation Average must confirm each other (Correct answer)
- Trading volume must exceed a 52-week average
- The S&P 500 must close above a major moving average
Correct answer: Both the DJIA and the Dow Jones Transportation Average must confirm each other
Dow Theory requires both the DJIA and the DJTA to confirm a primary trend signal, as divergence between the two averages casts doubt on the trend's validity.
Question 4: In Elliott Wave Theory, which wave within an impulse sequence is typically the longest and strongest?
- Wave 1
- Wave 2
- Wave 3 (Correct answer)
- Wave 5
Correct answer: Wave 3
Wave 3 is almost always the longest and most powerful impulse wave, characterized by broad market participation, high momentum, and strong fundamental confirmation.
Question 5: The seasonal tendency for US equity markets to perform well from November through April is known as:
- The January Effect
- The Halloween Indicator (Correct answer)
- The Santa Claus Rally
- The Summer Doldrums
Correct answer: The Halloween Indicator
The Halloween Indicator (or 'Sell in May and Go Away') refers to the historical tendency for equities to perform better from November through April than from May through October.
Question 6: In Dow Theory, 'lines' refer to:
- Trendlines drawn on price charts
- Horizontal price ranges reflecting accumulation or distribution (Correct answer)
- Moving average crossover signals
- The primary trend direction over one year or more
Correct answer: Horizontal price ranges reflecting accumulation or distribution
In Dow Theory, a 'line' is a narrow horizontal price range (typically within 5%) over several weeks, representing accumulation or distribution before a breakout.
CMT CMT Market Cycles 2
The Hurst Cycle model primarily focuses on identifying: