CMT CMT Market Cycles 1 — Questions and Answers
Question 1: According to Dow Theory, which phase of a bull market is characterized by broad public participation and rising prices across all sectors?
- Accumulation phase
- Public participation phase (Correct answer)
- Distribution phase
- Capitulation phase
Correct answer: Public participation phase
The public participation phase is the second stage of a Dow Theory bull market, where the majority of investors recognize the uptrend and actively buy, driving prices broadly higher.
Question 2: Elliott Wave Theory posits that market prices move in a pattern of how many waves in the direction of the main trend?
- 3
- 5 (Correct answer)
- 7
- 8
Correct answer: 5
Elliott Wave Theory identifies five impulse waves in the direction of the main trend (waves 1, 2, 3, 4, 5) followed by three corrective waves (A, B, C).
Question 3: In Dow Theory, a 'secondary reaction' in a bull market is best described as:
- A permanent reversal of the primary trend
- A short-term correction of one-third to two-thirds of the prior primary move (Correct answer)
- A continuation pattern confirming the uptrend
- A sideways consolidation lasting less than three weeks
Correct answer: A short-term correction of one-third to two-thirds of the prior primary move
A secondary reaction in Dow Theory is an intermediate counter-trend move that typically retraces one-third to two-thirds of the prior primary trend move.
Question 4: The Kondratieff Wave (K-Wave) cycle is associated with an approximate period of:
- 4 years
- 10 years
- 18 years
- 50–60 years (Correct answer)
Correct answer: 50–60 years
The Kondratieff Wave is a long-term economic cycle of approximately 50 to 60 years, identified by Russian economist Nikolai Kondratieff based on capitalist economies.
Question 5: The presidential election cycle theory suggests that US equity markets tend to perform best during which year of the four-year presidential cycle?
- First year after election
- Second year (mid-term)
- Third year (pre-election) (Correct answer)
- Fourth year (election year)
Correct answer: Third year (pre-election)
The presidential cycle theory holds that the third year (pre-election year) typically produces the strongest equity returns as incumbents enact stimulative policies ahead of the election.
Question 6: In Elliott Wave Theory, corrective waves are labeled with:
- Numbers 1 through 5
- Letters A, B, C (Correct answer)
- Roman numerals I through V
- Greek letters alpha, beta, gamma
Correct answer: Letters A, B, C
Elliott Wave Theory labels the three-wave corrective sequence with letters A, B, and C to distinguish them from the five numbered impulse waves.
CMT CMT Market Cycles 1
According to Dow Theory, which phase of a bull market is characterized by broad public participation and rising prices across all sectors?