100-day Moving Average

What is 100-day Moving Average?

The 100-day moving average (100-day MA) is a widely followed technical indicator used by traders and investors to analyze stock prices and other financial assets. It represents the average closing price of an asset over the preceding 100 trading sessions. This calculation smooths out price volatility, revealing underlying trends and potential support or resistance levels.

As a medium-term indicator, the 100-day MA offers a more stable view than shorter-term averages like the 20-day or 50-day MA. It is often considered significant because it captures trends over approximately 20 weeks of trading, a period long enough to filter out short-term noise but short enough to remain relevant to current market dynamics. Many technical analysts consider a price trading above its 100-day MA as a sign of a bullish trend, while a price below it suggests a bearish trend.

The 100-day MA is frequently used in conjunction with other technical indicators, such as volume and other moving averages (e.g., 50-day or 200-day), to confirm trading signals and develop more robust trading strategies. Its simplicity and effectiveness in identifying intermediate-term trends have cemented its place as a staple tool in the technical analyst’s toolkit.

Key Takeaways

• The 100-day moving average smooths price data to reveal intermediate-term trends.
• It is calculated by averaging the closing prices of an asset over the last 100 trading sessions.
• Traders often view a price above the 100-day MA as bullish and below it as bearish.
• It is commonly used with other indicators to confirm trading signals.
• The 100-day MA provides a more stable trend indication than shorter-term moving averages.

Understanding 100-day Moving Average

The 100-day moving average is a type of simple moving average (SMA), though exponential moving averages (EMAs) can also be applied over 100 days. The SMA gives equal weight to all 100 closing prices used in its calculation. This means that the oldest price has the same impact as the most recent price. When a new trading day’s closing price is added to the calculation, the oldest closing price (from 101 days ago) is dropped.

This averaging process effectively dampens short-term price fluctuations, making it easier to discern the direction of the prevailing trend. A rising 100-day MA indicates that prices are generally increasing over the medium term, while a falling 100-day MA suggests a downward trend. The slope and direction of the 100-day MA itself are therefore key components of its analysis.

Technical analysts often look for periods where the price of an asset has been consistently trading above its 100-day MA for an extended time as a sign of a strong uptrend. Conversely, sustained trading below this average can signal a sustained downtrend. Furthermore, the 100-day MA line itself can act as a dynamic support level during an uptrend, where the price may bounce off it, or a resistance level during a downtrend, where the price may be capped by it.

Formula (If Applicable)

The 100-day moving average is calculated using the Simple Moving Average (SMA) formula:

100-day SMA = (P1 + P2 + … + P100) / 100

Where:

• P1 is the closing price of the asset on the first day.
• P2 is the closing price on the second day.
• …
• P100 is the closing price on the 100th day.

Real-World Example

Consider a hypothetical stock, “TechCorp,” which has been trading in a strong uptrend for several months. An investor monitoring TechCorp notices that its stock price has consistently stayed above the 100-day moving average. This suggests a healthy medium-term trend.

If the stock price pulls back to its 100-day MA line, say at $50 per share, and then bounces back up strongly, this can be interpreted as a bullish signal. The 100-day MA is acting as a support level, and the recovery indicates that buying interest remains strong at this level. Conversely, if TechCorp’s stock price breaks decisively below its 100-day MA, especially with increasing volume, it could signal a potential shift to a bearish trend, prompting some investors to consider selling.

Traders might also look for crossovers between the 100-day MA and other moving averages, such as the 50-day MA. A “golden cross” where the 50-day MA crosses above the 100-day MA is often seen as a strong bullish signal, confirming the upward trend. A “death cross,” where the 50-day MA falls below the 100-day MA, would be a bearish signal.

Importance in Business or Economics

In the business world, understanding technical indicators like the 100-day moving average is crucial for financial analysts, portfolio managers, and traders. It provides a quantifiable method for assessing market sentiment and trend strength without relying solely on fundamental analysis, which can be slower to reflect market shifts. Companies that are publicly traded are constantly being evaluated by investors based on their stock’s performance relative to key technical levels.

For corporate finance departments, monitoring the company’s stock performance against key moving averages can offer insights into investor perception and market demand for the company’s shares. Significant deviations or trend changes indicated by the 100-day MA might prompt management to re-evaluate strategic communications or financial reporting to the market. It helps in understanding how the market is pricing the company’s future prospects over an intermediate time frame.

Moreover, companies themselves may use moving averages to analyze the performance of their own products or market segments if sales data can be tracked similarly to price data over time. While not a direct application for external stock valuation, the principle of smoothing data to identify trends is universally applicable in business analysis.

Types or Variations

While the 100-day Moving Average most commonly refers to the Simple Moving Average (SMA), there is a variation known as the Exponential Moving Average (EMA).

The 100-day Exponential Moving Average (100-day EMA) also calculates an average over 100 periods but places a greater emphasis on more recent prices. This means that the most recent closing prices have a larger impact on the EMA’s value than the older closing prices. The EMA reacts more quickly to price changes than the SMA, which can be advantageous for traders looking to capture trends as they develop.

Another variation involves using different time periods for moving averages, such as the 50-day MA, 200-day MA, or even shorter periods like 20-day MA. These are often used in combination with the 100-day MA to generate more complex trading signals. For example, a crossover strategy might involve the 100-day MA crossing over the 200-day MA, indicating a longer-term trend shift.

Related Terms

• Simple Moving Average (SMA)
• Exponential Moving Average (EMA)
• Technical Analysis
• Support and Resistance
• Trend Line
• Golden Cross
• Death Cross

Sources and Further Reading

• Investopedia – Moving Average: https://www.investopedia.com/terms/m/movingaverage.asp
• Technical Analysis of the Financial Markets by John J. Murphy (Book)
• TradingView – Moving Averages: https://www.tradingview.com/blog/moving-averages/
• StockCharts.com – Moving Averages: https://www.stockcharts.com/school/doku.php?id=chart_school:analysis_techniques:moving_averages

Quick Reference

Type: Technical Analysis Indicator

Calculation: Average of closing prices over 100 trading days (SMA)

Purpose: Identify intermediate-term trends, support, and resistance.

Interpretation: Price above 100-day MA = generally bullish; Price below 100-day MA = generally bearish.

Frequently Asked Questions (FAQs)