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 56%, down from 66% three weeks ago. Four indicators from Australia and China indicate risk-on, with a 60% weighting, while the US Bull/Bear indicator has a 40% weighting.
China’s NBS Manufacturing PMI fell sharply from 49.8 in September to 49.0 in October. A PMI below 49.0 signals risk-off.
September Australian building approvals will be released on Monday, where the 3-month moving average was close to a risk-off signal in August.
Stock Pricing
ASX stock pricing declined to 88.70 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 reflects a mild bear market, while 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.