Author: Colin Twiggs

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.
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ASX Weekly Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

The ASX Bull-Bear Market indicator is unchanged at 54%, signaling a mild bear market.

Three of six indicators from Australia and China (our largest trading partner) signal risk-off. These have a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, also unchanged, makes up the remaining 40%.

ASX Bull-Bear Market Indicator

NAB forward orders remain below zero, signaling a contraction.

Australia: NAB Forward Orders

The OECD composite leading indicator for China improved to 101.03 in April, but this may have been affected by pre-ordering, which boosted exports ahead of the imposition of tariffs.

China: OECD Leading Composite Index

China’s NBS manufacturing PMI fell sharply to 49.0 in April. Any further decrease would trigger another recession signal.

China: NBS Manufacturing PMI

Stock Pricing

ASX stock pricing increased to 79.92 percent, a substantial gain from 67.85 five weeks ago, and approaching the high of 85.83 from February.

ASX Stock Market Value Indicator

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 bear market, while the risk of a significant drawdown remains high.

Australian private dwelling approvals are weakening, and China’s NBS manufacturing PMI is a hair’s breadth away from a recession warning; so the bull-bear indicator is on negative watch1.

Acknowledgments

Notes

  1. When a credit-rating agency places a company on negative watch, it indicates an increased likelihood of downgrading the rating in the near future.
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US Weekly Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator remained at 60% this week, with two of the five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The University of Michigan consumer survey of current economic conditions recorded the second lowest reading since its start in 1960. The lowest was in the aftermath of the pandemic, in June 2022.

University of Michigan: Current Economic Conditions

Stock Pricing

Stock pricing rallied to 96.59, compared to 95.04 four weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, warning of the risk of a significant drawdown.

Acknowledgments

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Australian Jobs versus Rate Cuts

The RBA is expected to cut interest rates by 50 basis points next week, with a further 25 basis points in June, according to the NAB economics team.

CPI declined to a low annual rate of 2.4% in the first quarter, well within the RBA’s target range. However, the rate jumped to 0.9% (3.6% annualized) in the latest quarter.

Australian CPI - Quarterly & Annual

While this gives the RBA some leeway, the labor market remains strong, warning of the dangers of cutting too early.

Unemployment is a healthy 4.1%.

Australia: Unemployment

Employment continues in a strong uptrend.

Australia: Employment

The wage price index reversed its recent decline, rising by 3.4% over the past 12 months, while the quarterly rate increased to 0.9% (3.6% annualized), signaling underlying inflationary pressure.

Australia: Wage Price Index

However, monthly hours worked dipped slightly, with the monthly trend falling by 0.1%, warning of a slowdown ahead.

Australia: Aggregate Monthly Hours Worked

Business confidence is also weak. NAN April business confidence remains below zero, while current business conditions are steadily declining.

NAB Business Confidence & Conditions

Cash flows are suffering, according to the NAB business survey, falling to their lowest level since 2020.

NAB Business Cashflow

Forward orders have been contracting since 2023.

NAB Business Forward Orders

The slowdown has affected the retail and wholesale industries the most, but mining and transport & utilities show the steepest monthly declines.

NAB Business Forward Orders by Industry

Declining capital expenditure warns of an economic contraction and slowing growth ahead.

NAB Business Capital Expenditure

Conclusion

The Australian economy is gradually slowing, but unemployment remains low, leaving the RBA with a difficult choice: cut rates in anticipation that unemployment will rise, or wait for the actual data? We would argue that they should hold firm while unemployment is low, but that seems to be a minority view.

Acknowledgments

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ASX Weekly Market Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 54%, signaling a mild bear market.

Indicators from Australia and China (our largest trading partner) were unchanged, with three of the six signaling risk-off. These have a 60% weighting with the US bull-bear indicator making up the other 40%.

Bull-Bear Market Indicator

Private dwelling approvals declined to a seasonally adjusted 14.9 thousand in March. However, the 3-month moving average above the 20-year moving average continues to signal risk-on.

Australia: Private Dwelling Approvals

Stock Pricing

ASX stock pricing increased to 78.41 percent, compared to 67.85 four weeks ago and a high of 85.83 in February.

Stock Market Value Indicator

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 bear market, while the risk of a significant drawdown remains high.

Australian private dwelling approvals are weakening, and China’s NBS manufacturing PMI is a hair’s breadth away from a recession warning; so the bull-bear indicator is on negative watch1.

Acknowledgments

Notes

  1. When a credit-rating agency places a company on negative watch, it indicates an increased likelihood of downgrading its credit rating in the near future.
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US Weekly Market Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator remained at 60% this week, with two of the five leading indicators signaling risk-off:

Bull-Bear Market Indicator

We have revised our Heavy Truck Sales indicator to use a 12-month moving average of unadjusted data from the BEA. Recent data revisions were due to adjustments to seasonal factors provided by the Fed. Switching to a 12-month MA eliminates the need for seasonal adjustments.

The graph below compares a buy-and-hold strategy for the S&P 500 (green) to an active strategy (purple) that switches to AA corporate bonds when the Heavy Truck Sales indicator signals risk-off (white bars).

Heavy Truck Sales

The graph below shows an active strategy (blue) that switches to gold when the Heavy Truck Sales indicator signals risk-off (white bars).

Heavy Truck Sales

Stock Pricing

Stock pricing eased to 96.03, compared to 95.04 three weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

We remain on the cusp of a bear market, with the bull-bear indicator at 60%. Stock pricing remains extreme, warning of the risk of a significant drawdown.

Acknowledgments

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ASX Weekly Market Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The dial 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 46%, signaling a bear market. Three of the six leading indicators signal risk-off, while the US bull-bear index remains at 40% (with a 40% weighting).

Bull-Bear Market Indicator

The ASX 200 Financials Index (XFJ) rallied to above its 50-week weighted moving average, but remains in a downtrend unless there is a breakout above the recent high at 9250.
ASX 200 Financials Index

Stock Pricing

ASX stock pricing rose to 73.86 percent, compared to 67.85 two weeks ago and a high of 85.83 in February.

Stock Market Value Indicator

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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 bear market, while the risk of a significant drawdown remains high.

Acknowledgments

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Blow-off or buy the dip?

President Charles de Gaulle once equated being an ally of the United States to sharing a lifeboat with an elephant. The last month has been like sharing a lifeboat with an elephant on ketamine.

Gold epitomizes recent volatility in financial markets. It spiked up to $3,500 per ounce on President Trump’s threat to fire Fed chair Jerome Powell and then plunged when Treasury Secretary Bessent and later Trump moved to placate markets.

Spot Gold

Wall Street flipped to buy mode on Tuesday, without any fresh criticism of U.S. Federal Reserve Chairman Jerome Powell or flip-flops on tariffs from President Donald Trump to disquiet markets again. Indexes reversed Monday’s tumble, hitting session highs following a report that U.S. Treasury Secretary Scott Bessent had said a tariff standoff with China was unsustainable and he expected the situation to de-escalate, raising hopes a bit on U.S. trade negotiations. (Reuters)

Is this a blow-off?

No. The Trend Index shows a sharp rise in volatility since April 9, but these are short-term moves rather than the culmination of a long-term acceleration.

Blow-offs typically occur after a feedback loop in which rising prices attract more buyers, who drive up prices, attracting more buyers. The cycle repeats, with the trend growing increasingly steeper until the market reaches saturation point, when new buyers dry up and the market reverses in a sharp blow-off top.

Similar feedback loops occur in nature–from bushfires and housefires to locust swarms and cyclones–where they start slowly and accelerate into a massive culmination. A bushfire runs out of dry brush, a fire in a room runs out of oxygen, a locust swarm runs out of food, and a cyclone runs out of moist air when it reaches land. All end similarly: expanding rapidly until they consume all available fuel, then suddenly dying.

The weekly chart below shows a typical stock blow-off, experienced by vaccine specialist Moderna (MRNA) during the 2020-2021 COVID pandemic.

Moderna (MRNA)

MRNA gained 2500% in less than two years before the accelerating uptrend ended suddenly, with a shooting star reversal at $500. The stock had more than doubled in the preceding four weeks, with the weekly Trend Index spiking to a high of 5.

In comparison, gold gained 75% over the past 14 months, accelerating to a 16% gain in the past five weeks, with the Trend Index peaking at a high of 1.

Weekly Gold Chart

Conclusion

There is no evidence that rising demand for gold is approaching a culmination. Private demand is growing, and central banks are rapidly converting reserves to gold. Demand is fueled by global uncertainty, and there is no end in sight.

The current pull-back is a much-needed correction after a steep advance. We expect strong support around $3,150 per ounce and will buy the dip. Our long-term target remains $4,000 within the next six months.

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Gold bear trap

Gold briefly broke support at $3,000 per ounce, threatening a correction to test the support band between $2,800 and $2,850. However, strong buying drove the precious metal above the support level, displaying a long tail on today’s candlestick. A breakout above $3,050 would complete a bear trap reversal, signaling a rally to $3,150.

Spot Gold

According to the IMF, gold increased to 21% of official currency reserves. However, gold reserves are far below the 60% to 70% required for a viable gold-backed financial system, as in the 1960s.

Official Gold Reserves

China’s and Saudi Arabia’s gold reserves are climbing steeply, while Western central bank holdings remain below 22,000 tonnes.

Increase in Rest-of-World (China) Gold Reserves

China’s actual reserves are likely higher than the official IMF figures. Jan Nieuwenhuijs at The Gold Observer estimates that China purchased 570 tonnes of gold through unofficial channels last year, with their total holdings close to 5,000 tonnes compared to the 2,280 tonnes in official figures.

Conclusion

We are long-term bullish on gold while the dollar-based global financial system weakens due to excessive government debt and steep fiscal deficits.

The false break below $3,000 warns of a bear trap. Recovery above $3,050 per ounce would confirm a short-term target of $3,150.

Acknowledgments

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ASX Weekly Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The dial 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 fell to 46%. Three of the six leading indicators continue to signal risk-off, but the US bull-bear index (a 40% weighting) declined to 40%.

Bull-Bear Market Indicator

Stock Pricing

ASX stock pricing declined to the 69.61 percentile from a high of 85.83 in February.

Stock Market Value Indicator

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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 declined to 46%, warning of a bear market, while the risk of a significant drawdown remains high.

Acknowledgments

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US Weekly Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The dial on the left indicates bull or bear market status, while the one on the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator has fallen to 40%, with three of the five leading indicators now signaling risk-off:

Bull-Bear Market Indicator

Heavy truck sales fell to 33.6K units in March, with the 3-month moving average declining more than 15% from its July 2023 high, warning of a recession.

Heavy Truck Sales (Units)

Stock Pricing

Stock pricing eased slightly to 95.09 from a high of the 97.79 percentile six weeks ago. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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

We are now in a bear market, with the bull-bear indicator falling to 40%. Stock pricing remains extreme, warning of the risk of a significant drawdown.

Acknowledgments

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