The gauge on the left indicates bull or bear market status, while the one on the right reflects stock market valuation.
Bull/Bear Market
The ASX Bull-Bear Market indicator remains at 56%, down from 64% five weeks ago.
Four of six indicators from Australia and China indicate risk-on, while the remaining two — NAB Forward Orders and the ASX 200 relative to Gold (in AUD) — are risk-off. The index includes a 40% weighting for the US Bull/Bear indicator.
Australian private dwelling approvals dipped sharply in July, but the 3-month moving average (at 15.7) remains above the long-term moving average, signaling risk-on.
The OECD Composite Leading Index for China continues to reflect weakness, with an August reading of 99.65, but remains above the risk-off threshold of 99.0 (red line).
Stock Pricing
ASX stock pricing eased slightly to 90.90, compared to a high of 92.23 percent three weeks ago and a low of 67.85 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.
The All Ordinaries PE climbed to 18.4 times highest trailing earnings, compared to highs of 21.0 in August 1987 and 20.3 in December 1999.
Conclusion
The ASX bull-bear indicator warns of a bear market, and extreme valuations raise 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.
