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 Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge 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 remains at 54%, after declining from 64% two weeks ago. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index. The US Bull-Bear Index, with a 40% weighting, completes the balance.

ASX Bull-Bear Market Indicator

The ASX 200 Financials Index (XFJ) retreated below its breakout level at 9250, warning of a correction. However, the index remains in a primary uptrend, signaling risk-on.

ASX 200 Financials Index

Stock Pricing

ASX stock pricing slipped to 87.12 percent from its new high of 87.85 percent last week, but well above the low of 67.85 in April.

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 is in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.

Acknowledgments

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

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

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.55, with expanding liquidity supporting financial markets.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing climbed to 97.50 percent, compared to a low of 95.04 percent in April 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.

The Shiller CAPE ratio compares the current S&P 500 index value to 10 years of inflation-adjusted earnings. The CAPE ratio of 38.33 is the highest outside of the Dotcom bubble in 2000.

S&P 500 Shiller CAPE

The forward price-earnings ratio is also at an extreme reading of 24.5, compared to the fifty-year average of 16.3.

S&P 500 Forward Price-Earnings Ratio

Conclusion

We are bordering on a bear market. The bull-bear indicator is still at 60%, but extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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S&P 500 weakens and gold rallies

Key Points

  • The S&P 500 closed above 6300 for the first time, supported by strong liquidity
  • But declining Trend Index peaks warn of a retracement
  • Consumer Confidence remains weak, and the Conference Board Leading Economic Index signals a recession
  • Gold and silver rallied as the dollar weakened

The S&P 500 closed above 6300 for the first time, but declining Trend Index peaks warn of selling pressure. Expect retracement to test support at 6100.

S&P 500

The Dow Jones Industrial Average also signals weakness, with declining Trend Index peaks indicating selling pressure.

Dow Jones Industrial Average

The Broad DJ US Index (red) has underperformed the DJ World ex-US index (blue) over the past six months.

DJ US Index ($DJUS) & DJ World ex-US ($W2DOW)

Financial Markets

Financial markets grow increasingly supportive, with the Chicago Fed National Financial Conditions Index (NFCI) declining to -0.54. Values above zero are considered restrictive.

Chicago Fed National Financial Conditions Index

Bitcoin has retraced slightly from resistance at $120K, but still signals bullish market conditions.

Bitcoin (BTC)

Treasury Markets

10-Year Treasury yields declined to 4.35%, but rising Trend Index troughs signal continued buying pressure.

10-Year Treasury Yield

Economy

Consumer confidence remains low, with the Conference Board index declining by 5 points to 93, similar to levels during the 2020 pandemic.

June’s retreat in confidence was shared by all age groups and almost all income groups. It was also shared across all political affiliations, with the largest decline among Republicans.

Conference Board: Consumer Confidence

The Conference Board’s Leading Economic Index (LEI) declined to 99.8% in June. Six-month growth in the LEI (blue) fell to an annualized -5.6%, below the -4.1% that signals a recession (marked in red).

Conference Board Leading Economic Index - Recession Signals

The black line on the above chart indicates negative growth in more than 50% of the LEI components below over the past six months. A broad decline confirms the recession signal.

Conference Board Leading Economic Index - Components

Dollar & Gold

The Dollar Index retreated below support at 98, signaling another decline. A breach of support of 96.50 would strengthen our long-term target of 90.

Dollar Index

Gold rallied to test resistance at $3,400 per ounce. A breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000.

Spot Gold

Silver is testing resistance at $39 per ounce. A breakout would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.

Spot Silver

Conclusion

The S&P 500 closed at a new high, but declining Trend Index peaks warn of selling pressure.

The Dow Industrial Average respected resistance at 45,000, failing to confirm the S&P 500 bull market signal.

Financial market conditions indicate strong liquidity, but consumer confidence is weak, and the Conference Board Leading Economic Index signals a recession.

The US Dollar Index retreated below support at 98, triggering a rally in gold and silver. A gold breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000. A silver breakout above $39 would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.

Acknowledgments

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ASX Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge 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 remains at 54%, after declining from 64% two weeks ago. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index, while the US Bull-Bear Index makes up the remaining 40%.

ASX Bull-Bear Market Indicator

The ASX 200 is in a strong uptrend but has lost nearly 60% relative to gold (in Australian Dollars) over the past ten years.

China: OECD Composite Leading Indicator

Stock Pricing

ASX stock pricing jumped sharply, reaching a new high of 87.85 percent, from a low of 67.85 percent in April.

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.

The 20% trimmed mean of forward PE ratios in the ASX 20 climbed to 23.33 times earnings. The 96.44th percentile warns that pricing is extreme.

ASX 20 20% Trimmed Mean of Forward PE

Conclusion

The ASX is now in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.

Acknowledgments

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

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

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.54, indicating that expanding liquidity supports financial markets. NFCI values above zero indicate restrictive financial conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased slightly to 97.32 percent, compared to a low of 95.04 percent in April 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.

The S&P 500 Price-to-Sales ratio climbed to 3.12, higher than during the Dotcom bubble and way above the long-term average of 1.78. While partly attributable to wider profit margins, these tend to be cyclical and revert to the mean. Margins are also likely to come under pressure as companies are forced to absorb import tariffs if they cannot pass them on to consumers through higher prices.

S&P 500 Price-to-Sales

Conclusion

We are bordering on a bear market, with the bull-bear indicator at 60%, while extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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Long bonds fall as CPI rises, stocks and gold remain bullish

Summary

  • Global long bond yields are rising, driven by fears over government debt levels
  • A sharp jump in services CPI warns of rising inflation in the broad economy
  • Strong liquidity boosts demand for stocks and for gold

Global long bond yields are rising, driven by fears over government debt levels.

Japan’s 30-year JGB yield jumped to a record 3.20% on Tuesday as opposition parties favoring tax cuts and loose monetary policy are expected to gain influence after the July 20 election. (Reuters)

German 30-year government bond yield is testing resistance at 3.26%, the highest since 2011. Investor concerns are focused on increased debt issuance—to fund defense and infrastructure spending—and rising international rates. (Reuters)

The 30-year US Treasury yield is testing resistance at 5.0%, the highest since 2007. The monthly charts below provide a long-term perspective.

30-Year Treasury Yield

10-year Treasury yields are expected to follow, testing resistance at 5.0%.

10-Year Treasury Yield

Rising yields are driven more by long-term structural issues than immediate concerns over an uptick in inflation.

CPI Inflation

CPI growth jumped to 2.7% for the twelve months to June, while core CPI, excluding food and energy, increased by 2.9%.

CPI & Core CPI - Annual

Sticky price CPI and the 16% trimmed mean, reflecting underlying inflationary pressures, jumped to 2.5% and 3.2% respectively.

Sticky CPI

More surprising was the sharp rise in CPI for services, excluding shelter, which is less affected by tariff increases than goods. The June figure is close to a 7.0% annual growth rate.

CPI Services excluding Shelter Rents

This confirms the earlier ISM Services PMI, which showed a sharp rise in the Prices sub-index in May and June. According to the ISM, fourteen of eighteen service industries reported increased prices paid in June. (ISM)

ISM Services Prices

Energy

Energy CPI showed negative growth for the twelve months to June, contributing significantly to the overall low headline CPI rate.

CPI & CPI Energy - Annual

Shelter

Shelter CPI comprises 35% of headline CPI. However, compared to the Case-Shiller 20-City Composite Home Price Index below, we find the index highly artificial and misleading.

CPI Shelter

Food

Food CPI growth increased in June to an annualized rate of 3.8%.

CPI Food

Stocks

The S&P 500 eased slightly in response to the CPI increase, but this is hardly noticeable on the monthly chart below.

S&P 500

The Dow Jones Industrial Average retreated from resistance at 45K. However,  rising Trend Index troughs signal long-term buying pressure, and a breakout above 45K would confirm the S&P 500 bull market signal.

Dow Jones Industrial Average

Financial Markets

Moody’s Baa Corporate bond spread declined to 1.73% after a sharp spike in March-April, indicating ready credit availability.

Moody's Baa Corporate Bond Spreads

The uptrend in Bitcoin indicates strong animal spirits, which are likely to spill over to stocks.

Bitcoin (BTC)

Dollar & Gold

The US Dollar Index is retracing to test resistance at 100 on the monthly chart below. Respect will likely confirm another decline, and our target of 90.

Dollar Index

Gold is consolidating in a bullish pennant on the monthly chart. Rising Trend Index troughs also signal buying pressure. A breakout above 3450 would strengthen our target of 4000 by year-end.

Spot Gold

Conclusion

Long bond yields are rising due to concerns over precarious public debt levels and growing fiscal deficits.

Inflation is still a secondary consideration, but a sharp rise in the CPI for services in June warns of higher inflation in the broader economy. Services are less impacted by tariffs, which are only likely to affect CPI after current pauses have expired and tariff rates are settled.

Liquidity remains strong, supporting high stock prices. A Dow Jones Industrial Average breakout above 45K would confirm the S&P 500 bull market signal.

Demand for gold is also strong, and a breakout above $3,450 per ounce would signal another advance, strengthening our target of $4,000 by year-end.

Acknowledgments

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ASX Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge 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 remains at 54%, after declining from 64% two weeks ago. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index, while the US Bull-Bear Index makes up the remaining 40%.

ASX Bull-Bear Market Indicator

NAB forward orders increased to zero in June, but the 3-month moving average remains negative at -1.67.

Australia: NAB Forward Orders

China’s OECD composite leading index eased to 100.26 for June, but remains well above our 99.0 risk-off level.

China: OECD Composite Leading Indicator

Stock Pricing

ASX stock pricing increased to a new high of 87.0 percent, from a low of 67.85 percent in April, now in the extreme range.

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.

The PE of highest trailing earnings compares the current value for the All Ordinaries Index to the highest preceding four consecutive quarters of earnings for the index, removing distortions from sharp earnings falls during recessions. The current multiple of 17.5 is the highest since the Dotcom era.

All Ordinaries: PE of Highest Trailing Earnings

Conclusion

The ASX is now in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.

Acknowledgments

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

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

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.51, reflecting strong liquidity in financial markets. Values above zero indicate restrictive financial conditions.

Chicago Fed National Financial Conditions Index

Weekly continued claims are climbing, warning of a deteriorating labor market despite the low 4.1% unemployment rate.

Continued Claims & Unemployment Rate

Stock Pricing

Stock pricing eased slightly to 97.34 percent, compared to a low of 95.04 percent in April 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.

Robert Shiller’s CAPE compares the current value of the S&P 500 index to inflation-adjusted earnings for the preceding 10 years. The multiple of 37.69 is similar to the last leg of the Dotcom bull market in 1999, warning that stocks are dangerously overpriced.

Robert Shiller's CAPE 10 Ratio

Conclusion

We are bordering on a bear market, with the bull-bear indicator at 60%. However, extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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Bitcoin blast-off bullish for S&P 500

Summary

  • Bitcoin reaches a new high
  • The bullishness is expected to spill over into stocks

Bitcoin blasted through resistance at 110K, reaching a new high at 117.6K, signaling a surge of animal spirits in financial markets.

Bitcoin (BTC)

The result is bound to be bullish for US stocks. The S&P 500 recovered above 6250, while higher Trend Index troughs signal buying pressure.

S&P 500

A breakout of the Dow Jones Industrial Average above 45K would confirm the S&P 500 bull market signal.

Dow Jones Industrial Average

Financial Markets

The Chicago Fed National Financial Conditions Index decreased to -0.51 on July 4, signaling easy monetary conditions.

Chicago Fed National Financial Conditions Index

Dollar & Gold

The US Dollar Index is retracing to test resistance at 98. Respect will likely confirm the downtrend. Our target is 90.
Dollar Index

Gold continues its bullish consolidation between 3200 and 3430. An upward breakout would strengthen our target of 4000 by year-end.

Spot Gold

Silver broke out from its recent pennant consolidation at 36, offering a short-term target of 39. Rising Trend Index troughs indicate buying pressure.

Spot Silver

Conclusion

Bitcoin warns of a sharp rise in bullish sentiment.

A Dow breakout above 45K would confirm a bull market.

This reminds us of the final leg of the bull market during the Dotcom bubble, from 1999 to 2000. It was great for traders but terrible for investors.

Acknowledgments

Posted on

ASX Market Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge 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 declined to 54%, from 64% last week, slipping toward a bear market. Three of six indicators from Australia and China signal risk-off, with a combined weighting of 60% in the ASX Bull-Bear Index, while the US Bull-Bear Index makes up the remaining 40%.

ASX Bull-Bear Market Indicator

The three-month moving average of private dwelling approvals in Australia crossed below its 20-year MA signal line, switching to risk-off.

Australian Private Dwelling Approvals

Stock Pricing

ASX stock pricing increased to a new high of 86.58 percent, from a low of 67.85 percent twelve weeks ago. Stock pricing is now considered extreme.

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 is now in a mild bear market, while the extreme valuation increases the risk of a significant drawdown.

Acknowledgments

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