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. The US Bull-Bear Index, with a 40% weighting, completes the balance.
The ASX 200 Financials Index (XFJ) retreated below its breakout level at 9250, warning of a correction. However, the index remains in a primary uptrend, signaling risk-on.
Stock Pricing
ASX stock pricing slipped to 87.12 percent from its new high of 87.85 percent last week, but well above the low of 67.85 in April.
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.
Conclusion
The ASX is 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.