The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks when market valuations are high, but we advise caution when adding new positions.
Bull/Bear Market
The ASX Bull-Bear Leading Index remains at 64, indicating a slowing bull market. One of four Australian indicators and one of two Chinese indicators signal risk-off. However, NAB Forward Orders and the ASX 200 Financials Index are falling sharply, so we are on bear watch. The improvement in recent weeks was due to changes to composite indicators for the US Leading Index, which enjoys a 40% weighting in the ASX Index.
Financial Sector
The ASX 200 Financials Index (XFJ) fell sharply below its 50-week weighted moving average. A breach of primary support at 9000, would indicate a primary downtrend, signaling risk-off.
Financial sector performance reflects confidence in the broader economy, particularly in the housing sector.
China
China is Australia's largest export market, and the performance of the Chinese economy directly impacts the ASX. The OECD Composite Leading Indicator lifted to 98.8 in April, from 98.49 in March. Values below 99.0, or a fall of more than 3 points from the preceding peak, signals risk-off.
Stock Pricing
ASX stock pricing jumped to 76.72 percent, from 73.92 percent last week. The highest reading was 92.23 percent in August 2025, compared with a low of 67.85 percent in April 2025.
We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.
Conclusion
The ASX bull-bear indicator at 64% signals a mild bull market, while stock market pricing remains high, increasing the risk of a drawdown.
Acknowledgments
- NAB: Monthly Business Survey
- 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
Managing Risk
To find out more, go to Managing Risk on the top menu, or see:
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.
