ASX 200 Forecast 2025-Apr-25
Minimal upside risk
Disclaimer: This market letter represents the views and opinions of the author. It does not constitute investment advice. It is my online journal to share knowledge of an alternative philosophy of financial markets and how I use this philosophy to trade. You should consult a financial adviser if you require professional assistance with your portfolio. I am not a financial adviser.
Summary
In the near term, the ASX 200 will approach and probably breach the recent low of 7169 points.
A bear market has commenced. The decline will likely be around 24% or slightly longer from peak to trough. The approximate target is circa 6550 points. While the price pattern will likely be at least 2.5 years, the actual trough will occur in the next few months.
A new secular bull market will commence sometime in 2H 2027 (from a higher low). A secular bull market is a significant multi-decade advance. Wave Structure suggests it will be the greatest bull market in the history of Australian equities.
In the wake
Australia's benchmark share market index, the S&P/ASX 200 (ASX 200), closed at 7968.23 points, gaining 206.5 points or 2.6% for the week.
Exhibit 1 illustrates the price movement for the ASX 200 during the past week.
Last week, I wrote:
I suspect 7928 points will prove a formidable level to break from the viewpoint of Price Behaviour. I have no qualms with a marginal temporary break of that level but the longer it persists above that level, the more it calls into question the validity of the above interpretation.
The ASX 200 got as high as 7984 on Thursday.
This is not a deal breaker for the interpretation, as Wave Structure - the quantitative relationship between different waves of price action - permits it.
From the viewpoint of Price Behaviour - the qualitative assessment of price action - the fact that the ASX 200 has moved as high as it has is a sign that future price action will take on more of a downward-to-sideways manner, rather than powerfully down.
Titbits
Morgan Stanley analysts have ratcheted their ASX 200 year-end target downwards, from 8,500 to 8,000 points.
A reminder that my year-end target for the ASX 200 is 7700 points, published on 5 January in my outlook for the ASX 200 in 2025.
Forecast
Exhibit 2 depicts the prevailing interpretation of price behaviour on the daily high-low chart for the ASX 200.1
The forecast has been marginally revised since last week.
The best explanation of price action since early March is a NEoWave Diametric, a corrective price pattern comprising seven waves, labelled alphabetically (A-B-C-D-E-F-G).
Diametrics have two key characteristics: first, they exhibit expansion during the first four waves and then contraction, or the reverse. Second, five of the seven waves are very similar in duration and complexity. Appendix One provides a deep dive into this price pattern.
Waves (a) through (d) are similar in duration and complexity, while waves (a) and (c) are quite different in price. A Diametric is the only candidate if I have counted these waves correctly.
The above forecast assumes (e) will approximate (c) in price but will be twice its duration. It also assumes (f) will approximate (b) in price and time, and (g) will approximate (a) in price and time. These are potential/likely relationships in Diametrics.
The Diametric will likely complete 25WA - Wave-A of the corrective price pattern commencing in 2025. This will be the first wave of either a NEoWave Contracting Triangle (A-B-C-D-E) or a Flat (A-B-C).
What are the lines in the sand for the above forecast?
Upside risk should be negligible at current levels.
Close by is the nice round number of 8000 points. From the viewpoint of the conventional model of the financial universe, it is no different from any other number. In my experience, how an index behaves around a nice round number reveals subtle clues about the psychology of investors at large.
Moreover, if 25WA begins from around 8200 points—denoted by the green circle in the chart above—then the ASX 200 is likely to struggle to reach, let alone surpass, that level for many months.
In summary, the risk-reward profile is heavily skewed to the downside over the next four to six weeks. Upside risk is probably no more than 100 points from current levels. Downside risk is up to 1000 points. The next trending move to the downside could start immediately, or it could be postponed by another 1-3 weeks with the ASX 200 moving sideways, on balance, during this time.
The expectation is that the ASX 200 bottoms around 6550 points in the next two to three months, before a large countertrend rally back towards 8000 takes place over 3 to 15 months.
The Psychological Trend
The psychological trend is the direction in which the largest, fastest moves are occurring.
Sometimes, countertrend waves can be larger than the trending preceding wave in a price pattern. In the chart above, (d) is marginally larger than (c). BUT it is considered a counter-trend move because it is much slower and more convoluted than (c).
It is also possible, but rare, that the largest wave of a price pattern is a countertrend wave. Generally speaking, this unusual event can only happen in two price patterns - a Flat and a Neutral Triangle.
Exhibit 3 below depicts a NEoWave Flat where B is the largest wave of the entire price pattern. It is considered a countertrend move because it is much slower than A and is also more convoluted, as it is comprised of three waves.
My investment decisions revolve around the psychological trend, as I am always interested in the actual risk-reward profile on offer.
At some point in the next 2.5 to 5 years, the psychological trend will be simultaneously higher on all time frames.
Smart money
Exhibit 4 compares the ASX 200 with the Last Hour Index using the Equal-Weight ASX 200 for its calculations.2
The premise behind this indicator is that professionals with deep pockets are most active during the final hour of trading when liquidity reaches its zenith. This interval also marks the final chance to initiate or liquidate positions within regular trading hours. Therefore, the Last Hour Index offers an alternative view of risk appetite, with turning points in this indicator typically preceding turning points in the benchmark index.
Since April 11, the Last Hour Index has been moving lower.
If this indicator is still leading the market by several weeks at inflexion points, as it has been doing recently, that points to an imminent peak in the ASX 200.
Market Internals
Exhibit 5 compares the ASX 200 with the Composite Advance-Decline Line (A-D Line).
The A-D Line is a representation of the cumulative total of the number of advancing issues (stocks that closed higher) minus the number of declining issues (stocks that closed lower) each day. When most stocks are moving higher, the A-D Line rises. Conversely, a declining A-D Line indicates that most stocks are moving lower. It provides a strong indication of the health of a market trend. The greater the participation of stocks, the greater the chance the trend will continue in the foreseeable future.
While the AD Line showed some vigour this week, it is lagging the ASX 200 - an indication that the latest rally is not necessarily built on strong foundations.
Risk Management
Investment Accounts
Hedged against downside risk using the Betashares Australian Equities Strong Bear Complex ETF (BBOZ).
10/04/2025. Bought 10,000 BBOZ at $28.34. Last traded price $27.62.
Trading Accounts
I remain short the ASX 200. Loss.
Looking towards Lake Bohinj from the mountain hut Dom na Komni.
Appendix One
The NEoWave Diametric is a corrective price pattern composed of seven segments or waves: four trending or directional waves labelled A, C, E, and G, and three countertrend or nondirectional waves B, D, and F.
Diametrics have two main characteristics: first, they expand during the first four waves and then contract, or the reverse may occur. These variations are illustrated above. Second, five out of the seven waves show significant similarity in duration and complexity.
Price
No Fibonacci relationships exist between adjacent or alternate waves.
The trending waves (A, C, E and G) tend to pair off. Two will be “x” price length while the other two are “y” price length.
Two of the corrective waves (B, D or F) will be similar in price.
Wave G will usually mimic Wave A or be related by 61.8% in price and time.
Time and Complexity
Five of the seven waves tend to be similar in time and complexity.
One of the waves will usually be twice as long in duration as the “similar” waves.
It is uncommon for five consecutive wave segments to have the same duration.
Lexicon
Corrective price pattern: A reaction against the prevailing trend of one larger degree. Overlapping is a common feature although it is not a strict prerequisite. Corrections are an outgrowth of indecision or ambiguity with respect to the future. They are labelled alphabetically (A-B-C etc).
Elliott Wave Principle: the idea that market behaviour is self-affine in nature due to recurrent oscillations in public opinion across different but simultaneous timeframes. It posits that price action can be defined, quantified and classified, and used to project the future evolution of price.
Impulsive price pattern: A fast-moving market. Impulse waves produce a significant change in the price level. A distinctive feature is minimal or no overlapping, depicting a strong level of conviction about the outlook. They contain five segments labelled numerically (waves 1-2-3-4-5).
NEoWave: Neely Extensions of Elliott Wave. The body of knowledge enunciated by Glenn Neely, represents a significant break or extension of the original theory postulated by Ralph Elliott.
Price behaviour: the qualitative assessment of price action. Essentially, the largest, fastest moves are always in the direction of the prevailing psychological trend.
Wave structure: the quantitative relationship between different waves of price action.
Transmission time:
Sydney: 25-April-2025 16:34
Ljubljana: 25-April-2025 08:34
London: 25-April-2025 07:34
New York: 25-April-2025 02:34
A high-low chart plots the period's highs and lows in the order in which they occur. I only utilise price action between 10:10 and 16:00 when the market is fully open.
The ASX 200 Equal Weight Index includes the same constituents as the benchmark ASX 200 Index. The latter is a capitalisation-weighted index, while the former gives each company an equal weighting. The Official Close is included in the calculation.
Thank you for your continued insights, I'm new to technical analysis but I find your explanation very interesting. The thing that's sitting with me at the moment I guess is how do you accommodate factors such as changing trade policy (for topical example) into technical analysis?
Thank you for your continued insights, I'm new to technical analysis but I find your explanation very interesting. The thing that's sitting with me at the moment I guess is how do you accommodate factors such as changing trade policy (for topical example) into technical analysis?