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In this 5 question sample exam, we have implemented an Excel interface that allows you to get an idea of what to expect in the CMT3 exam. We can not guarantee that this is exactly how it will function, but based on the available technology, we are confident that it will be similar to this. You must doubleclick on a cell to expose the formula (if there is one). If no formula shows, then you can assume that the cell did not have a formula.
We’ve also added a new RRG/Intermarket question. All other questions in the CMTA sample are copies of other questions we have in our practice exams.
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You are an investment adviser helping a client understand the construction of their portfolio. This client is interested in getting your technical perspective on two stocks: Facebook (FB) and ExxonMobil (XOM).
Examine the charts of both stocks. Each chart is a longterm daily candlestick chart with 50 and 200day moving averages (blue and red, respectively), as well as the stock’s relative strength versus the S&P 500.
1A: Review charts 1 and 2 and identify which stock is the most attractive from a classical technical standpoint?
You are an investment adviser helping a client understand the construction of their portfolio. This client is interested in getting your technical perspective on two stocks: Facebook (FB) and ExxonMobil (XOM).
Examine the charts of both stocks. Each chart is a longterm daily candlestick chart with 50 and 200day moving averages (blue and red, respectively), as well as the stock’s relative strength versus the S&P 500.
1B: Using the chart of the stock you selected in question 1, describe three pieces of technical evidence that justify your answer.
You are an investment adviser helping a client understand the construction of their portfolio. This client is interested in getting your technical perspective on two stocks: Facebook (FB) and ExxonMobil (XOM).
Examine the charts of both stocks. Each chart is a longterm daily candlestick chart with 50 and 200day moving averages (blue and red, respectively), as well as the stock’s relative strength versus the S&P 500.
1C: From a riskmanagement standpoint, think about how you would recommend entering this trade. Describe what buy condition and what stop loss appears warranted based on the chart.
It makes sense to either:
Logical stops include:
It makes sense to either:
Logical stops include:
You are an investment adviser helping a client understand the construction of their portfolio. This client is interested in getting your technical perspective on two stocks: Facebook (FB) and ExxonMobil (XOM).
Examine the charts of both stocks. Each chart is a longterm daily candlestick chart with 50 and 200day moving averages (blue and red, respectively), as well as the stock’s relative strength versus the S&P 500.
1D: Your client wants to risk no more than 2% of their $100,000 portfolio on this trade. Assuming your client is determined to use a stop 7% below the stock’s current price, calculate the maximum dollar value they should allocate to this first position (round to the nearest dollar).
$100,000 * 0.02 = $2,000 risk per position.
$2,000 / 7% stop loss = $28,571 position size.
$100,000 * 0.02 = $2,000 risk per position.
$2,000 / 7% stop loss = $28,571 position size.
Rather than buying a single stock, your client has decided to invest his entire portfolio into both Facebook and ExxonMobil, equally weighted. You begin to tabulate the following data to help him understand and manage the investment risks involved:
Stock  Mean (Expected Return) 
Standard Deviation (σ) 

FB  41.084  35 
XOM  12.88  10.8 
50% FB / 50% XOM Portfolio 
26.982  19.003 
Correlations:
FB  XOM  

FB  1.00  0.0979 
XOM  0.0979  1.00 
1E: What does standard deviation (σ) represent in the table above?
Volatility of returns, or risk.
Volatility of returns, or risk.
Rather than buying a single stock, your client has decided to invest his entire portfolio into both Facebook and ExxonMobil, equally weighted. You begin to tabulate the following data to help him understand and manage the investment risks involved:
Stock  Mean (Expected Return) 
Standard Deviation (σ) 

FB  41.084  35 
XOM  12.88  10.8 
50% FB / 50% XOM Portfolio 
26.982  19.003 
Correlations:
FB  XOM  

FB  1.00  0.0979 
XOM  0.0979  1.00 
1F: How is the standard deviation (σ) different from popular indicators like the VIX?
Standard deviation is different from the VIX because it is a statistical measure of observed volatility, while the VIX Volatility Index is a statistical measure of implied volatility.
Standard deviation is different from the VIX because it is a statistical measure of observed volatility, while the VIX Volatility Index is a statistical measure of implied volatility.
Rather than buying a single stock, your client has decided to invest his entire portfolio into both Facebook and ExxonMobil, equally weighted. You begin to tabulate the following data to help him understand and manage the investment risks involved:
Stock  Mean (Expected Return) 
Standard Deviation (σ) 

FB  41.084  35 
XOM  12.88  10.8 
50% FB / 50% XOM Portfolio 
26.982  19.003 
Correlations:
FB  XOM  

FB  1.00  0.0979 
XOM  0.0979  1.00 
1G: While the expected return of the 50/50 portfolio is simply the average of the expected return of the two stocks, the standard deviation doesn’t keep that same relationship. Explain why not?
Because the correlations between FB and XOM are low. The lower the correlations (and covariances), the greater the opportunity to reduce portfolio volatility – in this case, standard deviation. This is an example of the riskreducing benefits of diversification.
Because the correlations between FB and XOM are low. The lower the correlations (and covariances), the greater the opportunity to reduce portfolio volatility – in this case, standard deviation. This is an example of the riskreducing benefits of diversification.
Wayne Garthrow, CMT, is a Junior Portfolio Manager for a $3B largecap equity fund at Illinois Investment Services Inc. Wayne is part of a team that also consists of a Portfolio Assistant, 2 Client Portfolio Managers and a Senior Portfolio Manager. Wayne was recently added to the team because of his experience in fusing technical market analysis with economic indicators. One of the Conference Board’s economic indicators that Wayne finds especially useful is the 4Week Moving Average of Initial Jobless Claims. Recently, Wayne noticed that this indicator has broken higher out of a multimonth base.
2A: Compare Chart 21 with Chart 22 and Chart 23. Which of the RRG chart options is more likely to be an actual snapshot of S&P sector rotation taking place around the timeframe marketd by the letter X on Chart 21 above?
This question is tying together a lot of concepts. Firstly you need to understand the Relative Rotation Graph and what the positions of the securities mean. Then you need to remember that the “Average Weekly Claims for Unemployment Insurance” is a Leading economic indicator according to Chapter 18. Rising unemployment is a sign that the economy is in trouble. More specifically, the rise has been happening for a while with a break of a trend line. We would be looking for sectors that perform best during the economic contraction to be Leading.
Here is the Intermarket Diagram. I’ve added a red dot where I think we are. You can see that Utilities, Staples and Health Care are all leading in chart 23.
For a quick review on RRGs and how you can use them with Intermarket signals, please watch this 3min video.
Reference: MTA, CMT Level III Curriculum (2017), Chapters 17, 18
Reference: MTA, CMT Level III Curriculum (2018), Chapters 15, 17
This question is tying together a lot of concepts. Firstly you need to understand the Relative Rotation Graph and what the positions of the securities mean. Then you need to remember that the “Average Weekly Claims for Unemployment Insurance” is a Leading economic indicator according to Chapter 18. Rising unemployment is a sign that the economy is in trouble. More specifically, the rise has been happening for a while with a break of a trend line. We would be looking for sectors that perform best during the economic contraction to be Leading.
Here is the Intermarket Diagram. I’ve added a red dot where I think we are. You can see that Utilities, Staples and Health Care are all leading in chart 23.
For a quick review on RRGs and how you can use them with Intermarket signals, please watch this 3min video.
Reference: MTA, CMT Level III Curriculum (2017), Chapters 17, 18
Reference: MTA, CMT Level III Curriculum (2018), Chapters 15, 17
Wayne Garthrow, CMT, is a Junior Portfolio Manager for a $3B largecap equity fund at Illinois Investment Services Inc. Wayne is part of a team that also consists of a Portfolio Assistant, 2 Client Portfolio Managers and a Senior Portfolio Manager. Wayne was recently added to the team because of his experience in fusing technical market analysis with economic indicators. One of the Conference Board’s economic indicators that Wayne finds especially useful is the 4Week Moving Average of Initial Jobless Claims. Recently, Wayne noticed that this indicator has broken higher out of a multimonth base.
2B: Briefly explain the reasons for your choice. Be sure to focus your comments on sector rotation and the possible implications for the economy, describe the logic behind your answer.
First, when the economy is weakening, filings for unemployment insurance increase (2pts)
Second, the Chart 21 breakout shows this measure is undergoing a meaningful trend adjustment. Economy may be transitioning from the “full expansion” phase to the “early recession” phase of the business cycle (2pts)
Utilities, Consumer Staples and Healthcare leading (Chart 21) imply fundamental deterioration in business cycle (2pts)
Reference: MTA, CMT Level III Curriculum (2017), Chapters 17, 18
Reference: MTA, CMT Level III Curriculum (2018), Chapters 15, 17
First, when the economy is weakening, filings for unemployment insurance increase (2pts)
Second, the Chart 21 breakout shows this measure is undergoing a meaningful trend adjustment. Economy may be transitioning from the “full expansion” phase to the “early recession” phase of the business cycle (2pts)
Utilities, Consumer Staples and Healthcare leading (Chart 21) imply fundamental deterioration in business cycle (2pts)
Reference: MTA, CMT Level III Curriculum (2017), Chapters 17, 18
Reference: MTA, CMT Level III Curriculum (2018), Chapters 15, 17
2C: Which one of the following lists contains a mix of leading and lagging indicators?
Reference: MTA, CMT Level III Curriculum (2017), Chapter 18
Reference: MTA, CMT Level III Curriculum (2018), Chapter 17
Reference: MTA, CMT Level III Curriculum (2017), Chapter 18
Reference: MTA, CMT Level III Curriculum (2018), Chapter 17
Investment committees are standard in the investment world and in some cases are legislated. Groupthink can be a big problem when it comes to investing. We often see conflicting opinions from the same firm on market direction.
3A: State two conditions where group decisions are statistically useful:
If these conditions are broken, the group advantage is quickly lost:
Reference: CMTA, CMT Level III Curriculum (2019), Chapter 21
Reference: CMTA, CMT Level III Curriculum (2020), Chapter 21
If these conditions are broken, the group advantage is quickly lost:
Reference: CMTA, CMT Level III Curriculum (2019), Chapter 21
Reference: CMTA, CMT Level III Curriculum (2020), Chapter 21
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
4A: The newsletter is recommending going long bonds. Which type of inflation would likely cause the author’s expected correlation of equities to bonds to be the least accurate?
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
4B: Should the type of inflation in the prior question occur, and is forecast to last for a period greater than a year, would you recommend being LONG gold? Why or why not? Your answer must include two distinct points from the assigned readings.
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
4C: Examine Table 1 below. As part of its evidence, the AlphaEdge newsletter calls attention to US corporate financials. Based on the trends in US corporate GDP and liabilities, what market stage are we likely in?
Table 1
Period of Study  US Corporate Real GDP  US Corporate Liabilities 

% Change from Preceding Quarter 
% Change from Preceding Quarter 

Oct 2016 – Dec 2016  1.8  2.0 
Jan 2017 – Mar 2017  1.6  2.5 
Apr 2017 – Jun 2017  1.9  2.4 
Jul 2017 – Sep 2017  2.0  3.4 
Oct 2017 – Dec 2017  1.7  4.1 
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
4D: One of the main premises of the newsletter is that a buy and hold, valueoriented investing approach typically outperforms momentum trading strategies over the long run. Part of the author’s rationale is due to the tax issues incurred from higher portfolio turnover. Cite two specific reasons why momentum investing may not be as tax disadvantageous as the newsletter states.
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
For questions 5 and 6 consult the following two exhibits:
The AlphaEdge newsletter cites: “Consider adding gold mining stocks to your portfolio to diversify our gold commodity investment recommendation. The included chart (GDXJ) shows an ETF that holds a variety of mining companies, which are traditionally very volatile. However, in the past six months, notice that prices have traded in a narrower band. This indicates that adding this security to your US Equity portfolio would help to increase the Sharpe Ratio, a key metric used for evaluating risk and reward”.
Table 2
Standard Deviation 
Expected Return 
Sharpe Ratio 


GDXJ  8  12  1.15 
GOLD  7  9  1.02 
SPX  13  6.4  0.98 
20/30/50 Portfolio 
10.4  9.7  0.29 
4E: Consult the chart of GDXJ. The newsletter is using Average True Range on the GDXJ chart as a measurement for future implied volatility. Do you agree with this and why? How is ATR typically used by technical analysts?
A popular asset allocation newsletter, called AlphaEdge, warns of the probability of a stock market bubble. In the article, the author offers the following advice: “Investors looking to reduce volatility and add downside protection should begin to shift equity holdings to more defensive assets, like fixed income and gold.”
For questions 5 and 6 consult the following two exhibits:
The AlphaEdge newsletter cites: “Consider adding gold mining stocks to your portfolio to diversify our gold commodity investment recommendation. The included chart (GDXJ) shows an ETF that holds a variety of mining companies, which are traditionally very volatile. However, in the past six months, notice that prices have traded in a narrower band. This indicates that adding this security to your US Equity portfolio would help to increase the Sharpe Ratio, a key metric used for evaluating risk and reward”.
Table 2
Standard Deviation 
Expected Return 
Sharpe Ratio 


GDXJ  8  12  1.15 
GOLD  7  9  1.02 
SPX  13  6.4  0.98 
20/30/50 Portfolio 
10.4  9.7  0.29 
4F: Examine the table of the threeposition portfolio. Discuss one benefit and one disadvantage when using the Sharpe Ratio as the means of detemrining risk and reward in the recommended portfolio.
One of the following negative rationales. The Sharpe Ratio does not account for:
One of the following positive rationales. The Sharpe Ratio helps:
One of the following negative rationales. The Sharpe Ratio does not account for:
One of the following positive rationales. The Sharpe Ratio helps:
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