The gauge on the left indicates bull or bear market status, while the gauge on the right reflects stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high, but we would advise investors to be circumspect about adding new positions without careful investigation of the underlying value.
Bull/Bear Market
The ASX Bull-Bear Market indicator jumped to 66%, compared to 56% last week, with NAB forward orders crossing to a risk-on signal.
Five of six indicators from Australia and China now indicate risk-on, while the ASX 200 relative to Gold (in AUD) remains risk-off. The index includes a 40% weighting for the US Bull/Bear indicator, which is unchanged.
NAB forward orders for Australia increased to 1.0 in August from 0 in the preceding two months, lifting the 3-month moving average above zero and signaling risk-on for the first time since October 2023.
Stock Pricing
ASX stock pricing increased to 91.37 percent, compared to a high of 92.23 percent four weeks ago and a low of 67.85 percent 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 All Ordinaries dividend yield fell to 3.12%, a level typical of recessions like 1987 and 2020, when falling earnings force dividend cuts. Dividends are reasonably healthy at present, suggesting that valuations are extreme.
Conclusion
The ASX bull-bear indicator has lifted to 66%, signaling a mild bull market. However, extreme valuations increase the long-term risk of a significant drawdown.
Acknowledgments
- NAB Monthly Business Survey: April 2025
- ABS: Private Dwelling Approvals
- Trading Economics: China Business Indicators
- OECD: Composite Leading 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.