CSC Fundamental and Technical Analysis 5 — Questions and Answers
Question 1: Which approach to stock analysis begins by evaluating broad macroeconomic conditions before examining individual companies?
- Bottom-up analysis
- Top-down analysis (Correct answer)
- Quantitative screening
- Contrarian analysis
Correct answer: Top-down analysis
Top-down analysis starts with the macroeconomy, narrows to sectors, then selects individual stocks, moving from the general to the specific.
Question 2: The Efficient Market Hypothesis (EMH) in its semi-strong form states that stock prices reflect:
- Only historical price and volume data
- All publicly available information (Correct answer)
- All public and private (insider) information
- Only fundamental accounting data
Correct answer: All publicly available information
Semi-strong EMH holds that prices incorporate all publicly available information, making fundamental and technical analysis unable to generate consistent excess returns.
Question 3: In technical analysis, Bollinger Bands widen when:
- The stock price is trending steadily upward
- Market volatility increases (Correct answer)
- Trading volume decreases significantly
- The dividend yield rises
Correct answer: Market volatility increases
Bollinger Bands are based on standard deviation; when volatility rises, the bands widen, and when volatility is low, the bands contract.
Question 4: When performing comparable company analysis, an analyst would most likely use which multiple to value a company with no positive earnings?
- Price-to-earnings (P/E)
- EV/EBITDA or EV/Revenue (Correct answer)
- Dividend discount model
- Price-to-dividends
Correct answer: EV/EBITDA or EV/Revenue
EV/Revenue or EV/EBITDA multiples are used when a company has negative earnings, since a P/E ratio is meaningless with no positive net income.
Question 5: A 'golden cross' is considered a bullish signal because it indicates:
- A stock has reached its 52-week high on heavy volume
- The short-term moving average has crossed above the long-term moving average (Correct answer)
- The company has announced a dividend increase
- RSI has moved from overbought to neutral territory
Correct answer: The short-term moving average has crossed above the long-term moving average
A golden cross occurs when the 50-day moving average crosses above the 200-day moving average, signaling strengthening upward momentum.
Question 6: In fundamental analysis, 'normalized earnings' are earnings that have been adjusted to remove:
- Tax expense and interest costs
- One-time or non-recurring items to reflect sustainable profitability (Correct answer)
- All non-cash charges including depreciation
- Foreign exchange gains and losses only
Correct answer: One-time or non-recurring items to reflect sustainable profitability
Normalized earnings strip out extraordinary or one-time items (gains, write-offs, restructuring charges) to show the underlying, repeatable earnings power.
Question 7: The 'advance-decline line' is a technical market breadth indicator that measures:
- The percentage change in the index versus the prior day
- The cumulative difference between advancing and declining issues (Correct answer)
- The ratio of 52-week highs to 52-week lows
- The average trading volume of the top 100 stocks
Correct answer: The cumulative difference between advancing and declining issues
The advance-decline line tracks the cumulative net number of advancing minus declining stocks, revealing whether a market move is broad-based or narrow.
CSC Fundamental and Technical Analysis 5
Which approach to stock analysis begins by evaluating broad macroeconomic conditions before examining individual companies?