The gauge on the left indicates bull or bear market status, while the indicator 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. Still, we advise investors to be circumspect about adding new positions without carefully investigating the underlying value.
Bull/Bear Market
The ASX Bull-Bear Market indicator remains at 66%, compared to 56% five weeks ago, signaling a mild bull market.
Five indicators from Australia and China indicate risk-on, while the ASX 200 relative to Gold (in AUD) remains risk-off. The composite index includes a 40% weighting for the US Bull/Bear indicator, which is also unchanged.
Australian private dwelling approvals declined to 14.1K in August, but the 3-month moving average remains at 15.3K. A cross below the 20-year moving average (15.1K) would signal risk-off.
China’s NBS manufacturing PMI improved to 49.8 points for September. The last reading below the 49.0 risk-off signal line was in May 2023.
Stock Pricing
ASX stock pricing increased to 90.10 percent, compared to a high of 92.23 percent in August 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.
Conclusion
The ASX bull-bear indicator signals a mild bull market. However, the extreme valuation increases 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.