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 is at 56%, down from 64% two weeks ago. The latest decline was due to a fall in the US Bull/Bear indicator, which has a 40% weighting in the ASX index.
Two of six indicators from Australia and China signal risk-off: NAB Forward Orders and the ASX 200 relative to Gold (in AUD).
Forward orders are improving, but the 3-month moving average remains below zero, signaling risk-off.
The ASX 200/Gold crossed above its 50-week weighted moving average this week, but has not yet completed a higher trough followed by a new high, signaling a reversal.
Stock Pricing
ASX stock pricing increased to a new high of 92.23 percent from a 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.
Forward price-earnings (FPE) for the ASX 20, calculated using a 20% trimmed mean, climbed to a new high of 23.93.
Conclusion
The ASX bull-bear indicator warns of a bear market, while valuations are now 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.