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CMA Final · Strategic Financial Management · Fundamental Analysis and Technical Analysis

A stock closed at the following prices over five consecutive days: Rs 100, Rs 104, Rs 102, Rs 106, Rs 108. Using a 3-day simple moving average, what is the latest value (day 5) of the moving average, and what does the day-5 price relative to it suggest?

The 3-day simple moving average uses the last three closes: 102, 106 and 108, totalling 316, so the average is Rs 105.33. The latest price of Rs 108 is above this average, which technical analysts read as a bullish signal.

  1. ARs 105.33; price above average, bullish signal
  2. BRs 105.33; price below average, bearish signal
  3. CRs 106.67; price above average, bullish signalCorrect
  4. DRs 106.67; price below average, bearish signal

Explanation

The 3-day SMA on day 5 uses days 3, 4 and 5: (102 + 106 + 108) / 3 = 316 / 3 = 105.33. Hence the correct value is 105.33, and price 108 is above it, which is bullish. Rs 106.67 would result from using the wrong window and is incorrect.

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