CPT Trading Strategies & Market Timing 3 — Questions and Answers
Question 1: The 'triple witching' event, which occurs four times per year, refers to the simultaneous expiration of:
- Quarterly earnings, dividend payments, and bond maturities
- Stock options, stock index futures, and stock index options (Correct answer)
- Commodity futures, currency futures, and treasury futures
- ETF rebalancing, mutual fund distributions, and index reconstitutions
Correct answer: Stock options, stock index futures, and stock index options
Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options on the third Friday of March, June, September, and December.
Question 2: A trader employing a 'momentum ignition' detection strategy would look for which combination of signals to identify potentially manipulated short-term moves?
- Very high volume spike on a tiny price move followed by reversal (Correct answer)
- Gradual price increase on steadily rising volume over several weeks
- Price consolidation near all-time highs with declining volume
- Steady price decline on average volume over multiple days
Correct answer: Very high volume spike on a tiny price move followed by reversal
Momentum ignition often shows a sharp volume spike with a small price move followed by quick reversal, suggesting an attempt to trigger stop orders rather than genuine demand.
Question 3: In the context of sector rotation strategy, which sectors are traditionally considered 'early cycle' and tend to outperform as the economy exits a recession?
- Utilities and consumer staples
- Financials, consumer discretionary, and industrials (Correct answer)
- Energy and materials
- Healthcare and real estate
Correct answer: Financials, consumer discretionary, and industrials
Financials, consumer discretionary, and industrials are classic early-cycle outperformers because they benefit directly from credit expansion and rising consumer spending at the start of a recovery.
Question 4: A 'dead cat bounce' in technical analysis refers to:
- A sustained reversal following a prolonged downtrend
- A brief, temporary recovery in a declining asset before the downtrend resumes (Correct answer)
- A price pattern that forms at the absolute bottom of a bear market
- A gap up opening that immediately reverses lower on the same day
Correct answer: A brief, temporary recovery in a declining asset before the downtrend resumes
A dead cat bounce is a short-lived price recovery in a downtrend that fails to signal a true reversal and is followed by continued decline.
Question 5: When a trader applies a 'trailing stop' strategy on a long position, the stop level:
- Remains fixed at the initial entry price throughout the trade
- Moves upward as the price rises but does not move down if price falls (Correct answer)
- Moves both up and down to maintain a fixed dollar distance from price
- Is recalculated daily based on the opening price
Correct answer: Moves upward as the price rises but does not move down if price falls
A trailing stop rises with price to lock in profits but remains in place if price falls, triggering an exit only when price drops back to the stop level.
Question 6: The 'January Barometer' is a seasonal trading concept suggesting that:
- High January volatility predicts a bear market for the full year
- January's stock market performance predicts the direction for the rest of the year (Correct answer)
- Markets always rise in January due to tax-loss selling recovery
- The first week of January sets the tone for each monthly return
Correct answer: January's stock market performance predicts the direction for the rest of the year
The January Barometer holds that as January goes, so goes the year — a positive January historically correlates with positive full-year returns.
Question 7: A trader using Fibonacci retracement levels would typically place potential support levels at which percentages after an upward price move?
- 10%, 20%, and 30%
- 23.6%, 38.2%, and 61.8% (Correct answer)
- 25%, 50%, and 75%
- 33%, 50%, and 66%
Correct answer: 23.6%, 38.2%, and 61.8%
The core Fibonacci retracement levels used in technical trading are 23.6%, 38.2%, and 61.8%, derived from the Fibonacci sequence ratios.
CPT Trading Strategies & Market Timing 3
The 'triple witching' event, which occurs four times per year, refers to the simultaneous expiration of: