108-month Moving Average

What is 108-month Moving Average?

The 108-month moving average is a technical analysis indicator used by traders and investors to smooth out price data over a period of 108 months. This long-term average helps in identifying major trends and potential support or resistance levels in financial markets, particularly for assets with longer investment horizons or for analyzing historical market cycles.

By averaging the closing prices of an asset over 108 months, this indicator filters out short-term volatility, providing a clearer view of the underlying, long-term trend. A rising 108-month moving average suggests a long-term uptrend, while a falling average indicates a long-term downtrend. The slope and direction of this average are key signals for strategic investment decisions.

This particular moving average is exceptionally long, often utilized in analyzing broader market cycles, commodity trends, or the performance of assets like real estate or long-term stock market indices where price movements unfold over many years. Its extended lookback period makes it a robust tool for identifying secular trends rather than cyclical or short-term fluctuations.

Key Takeaways

• The 108-month moving average smooths price data over a 108-month period to identify long-term trends.
• It helps in discerning major uptrends, downtrends, and potential long-term support or resistance levels.
• This exceptionally long moving average is best suited for analyzing secular market trends and assets with long price cycles.
• It filters out short-term noise, providing a clearer perspective on the underlying economic or market forces at play over many years.

Understanding 108-month Moving Average

The 108-month moving average is a type of simple moving average (SMA), though it can also be implemented as an exponential moving average (EMA). The calculation involves summing the closing prices of an asset for the preceding 108 months and dividing by 108. This method gives equal weight to each month’s closing price within the period, making it a straightforward representation of the average price over time.

For traders, the 108-month moving average acts as a significant indicator of the overall market sentiment and the health of a long-term trend. When the price of an asset is consistently trading above this moving average, it is generally considered to be in a long-term uptrend. Conversely, when the price falls below the 108-month moving average, it may signal a potential long-term downtrend or a significant correction.

The 108-month moving average is particularly valuable for long-term investors who are not concerned with short-term price fluctuations. It can help them make strategic decisions about when to enter or exit positions, or when to hold through market volatility, by focusing on the broader, multi-year trajectory of an asset or market.

Formula (If Applicable)

The formula for a 108-month Simple Moving Average (SMA) is:

108-Month SMA = (P1 + P2 + P3 + … + P108) / 108

Where:

• P1, P2, …, P108 are the closing prices for each of the past 108 months.

Real-World Example

Consider the S&P 500 index. If an analyst is examining the long-term trend of the stock market using the 108-month moving average, they would calculate the average closing price of the S&P 500 for the last 108 months (9 years). If this average is consistently rising and the S&P 500’s current price is above this line, it indicates a long-term bull market. If the average is declining and the index price falls below it, it suggests a long-term bear market or a significant downturn.

For instance, during periods of prolonged economic expansion, the 108-month moving average for major stock indices would likely show a steady upward trajectory. Conversely, during extended recessions or market crashes, the index price might fall significantly below its 108-month moving average, and the average itself might flatten or begin to decline, signaling a shift in the long-term trend.

This indicator would have shown a strong uptrend for the S&P 500 for much of the 2010s and early 2020s. However, if the market were to enter a sustained decade-long downturn, the 108-month moving average would eventually turn downwards, providing a clear signal of this extended bearish phase.

Importance in Business or Economics

In business and economics, the 108-month moving average can be a critical tool for assessing long-term economic cycles and the sustainability of major trends. For example, it can help businesses anticipate long-term shifts in consumer spending, commodity prices, or real estate values that impact strategic planning, investment, and resource allocation.

Economists and policymakers might use this indicator to understand the prevailing economic climate over nearly a decade. A sustained trend above the 108-month MA for a broad economic index could indicate a period of consistent growth and stability, influencing monetary policy decisions. Conversely, a trend below it might suggest prolonged weakness, potentially prompting fiscal stimulus measures.

For investors in sectors with long capital cycles, such as infrastructure or resource extraction, understanding the 108-month moving average of relevant commodity prices or asset values is essential for evaluating the long-term viability and profitability of their investments.

Types or Variations

While the 108-month moving average is typically calculated as a Simple Moving Average (SMA), it can also be applied as an Exponential Moving Average (EMA). An EMA gives more weight to recent prices, making it more responsive to current market conditions than an SMA, though for such a long period, the difference may be less pronounced.

Other variations involve using different data points, such as opening or closing prices, or using intraday data aggregated monthly. However, the standard practice for long-term trend analysis is to use monthly closing prices for an SMA calculation.

Some analysts might also employ weighted moving averages (WMA) or adaptive moving averages, which adjust their smoothing based on market volatility. Nevertheless, the core purpose remains to identify and confirm long-term trends, with the 108-month period emphasizing the longest available secular cycles.

Related Terms

• Simple Moving Average (SMA)
• Exponential Moving Average (EMA)
• Technical Analysis
• Trend Identification
• Support and Resistance Levels
• Secular Trend

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 Overview https://www.tradingview.com/wiki/Moving_Averages

Quick Reference

Indicator Type: Technical Analysis, Trend Following

Period: 108 months

Purpose: Identify long-term trends, support/resistance.

Calculation: Average of closing prices over 108 months.

Use Case: Long-term investing, secular trend analysis.

Frequently Asked Questions (FAQs)