The gauge on the left indicates whether the market is in a bull or bear phase, while the indicator on the right reflects the current 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 exercise caution when adding new positions.
Bull/Bear Market
The ASX Bull-Bear Market indicator remains at 56%, down from 66% four weeks ago. Four indicators from Australia and China indicate a risk-on stance, with a 60% weighting, while the US Bull/Bear indicator, with a 40% weighting, is 60% risk-off.
The OECD composite leading indicator for China strengthened to 99.59 from 99.52 in September—values below 99.0 signal risk-off.
September Australian building approvals rebounded to 16.8K, with the 3-month moving average holding above the 20-year average—values below the long-term moving average signal risk-off.
Stock Pricing
ASX stock pricing declined to 86.44 percent from 88.70 percent last week, 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 of 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 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.