The gauge on the left indicates bull or bear market status, while the one on the right reflects stock market drawdown risk.
Bull/Bear Market
The ASX Bull-Bear Market indicator remains at 54%, after declining from 64% two weeks ago. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index, while the US Bull-Bear Index makes up the remaining 40%.
NAB forward orders increased to zero in June, but the 3-month moving average remains negative at -1.67.
China’s OECD composite leading index eased to 100.26 for June, but remains well above our 99.0 risk-off level.
Stock Pricing
ASX stock pricing increased to a new high of 87.0 percent, from a low of 67.85 percent in April, now in the extreme range.
We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.
The PE of highest trailing earnings compares the current value for the All Ordinaries Index to the highest preceding four consecutive quarters of earnings for the index, removing distortions from sharp earnings falls during recessions. The current multiple of 17.5 is the highest since the Dotcom era.
Conclusion
The ASX is now in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.
Acknowledgments
- NAB Monthly Business Survey: April 2025
- ABS: Private Dwelling Approvals
- Trading Economics: China Business Indicators
- Morningstar: ASX 20 Statistics
- S&P Global Indices: All Ordinaries Statistics
- Market Index: ASX Statistics
- ABS: National Accounts
- ASX: Historical Market Statistics
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.