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 reverted to 64%, from 54% two weeks ago. Two 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, with a 40% weighting, completes the balance.
Australian private dwelling approvals jumped to 16.7K in June, lifting the 3-month moving average above its long-term signal line and reversing the risk-off signal from last month.
However, China’s National Bureau of Statistics Manufacturing PMI was bearish, retreating to 49.3 in July from 49.7 in June. A fall below 49.0 would signal risk-off.
Stock Pricing
ASX stock pricing climbed to a new high of 89.17 percent, 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.
The 20% trimmed mean of ASX 20 stocks’ price-to-sales ratio reached a new high of 4.71 since 2015.
Forward price-earnings for the ASX 20, also calculated as a 20% trimmed mean to remove outliers, is at a new high since data collection started in 2019.
Conclusion
The ASX bear market signal improved slightly, but valuations reached a new extreme, increasing 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.