Series 7

Portfolio Management - Securities Analysis

Currently, questions falling into the category of securities analysis are likely to be de-emphasized in the Series 7 exam. That is because the FINRA established in 2004 the Series 86/87 exam specifically for research analysts. However, to sit for the Series 86/87 a budding analyst first has to pass the Series 7, so you can still expect some analysis questions on your upcoming exam.

Exam Tips and Tricks
The Series 7 exam is likely to ask a few questions about the analysis of some or all of the following securities: equities, mutual funds and municipal bonds.

Let's focus on equities first.


Market Sentiment
The driving forces in the stock market are fear and greed. In polite company - in front of regulators, for instance - they are known collectively as market sentiment. More formally, they are known as the consensus - bullish or bearish - of the participants in the market.
  • Advance-Decline Index
    • One measure of market sentiment is the advance-decline index, the ratio of all stocks traded on an exchange that have gained in value to all those that have lost value.

    • Over time, this index shows the direction in which the market is headed.

  • Put/Call Ratio
    • Another measure is the put/call ratio, which is the number of put options divided by the number of call options.

    • A ratio higher than 1.0 indicates more active puts than calls and, thus, bearish sentiment.

  • Market Momentum
    • Market momentum is the change in an index over a period of time multiplied by the volume of component shares traded in that period.

    • Sometimes stocks move drastically in price on light trading - the day before a holiday, for example, or during the month of August when most people on Wall Street take at least a week's vacation.

    • These changes have a way of correcting themselves once people are back at their desks. By factoring in the number of shares traded as well as the price per share, market momentum helps analysts avoid reaching misleading conclusions and giving bad advice.
For those who are unfamiliar with the topic of price momentum, the article Momentum and the Relative Strength Index will shed light.
  • Trading Volume
    • The number of shares traded in a day on an exchange.




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