ASX 200 Forecast 2025-Feb-28
Lower to sideways
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
A trending move to the downside is in progress on the Weekly Chart.
Regarding the outlook for the next 2–3 years, a bear market is highly likely. It will probably commence in 3Q2025. From peak to trough, the decline will likely be around 24%.
A new secular bull market will commence sometime in 2027 or 2028, defined here as 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 8172.40 points, losing 123.8 points or 1.5% for the week.
Exhibit 1 illustrates the price movement for the ASX 200 during the past week.
Last week, I reaffirmed that:
The target range on the downside [until late March] remains 7800 to 8050 points, but there is a chance (say 25%) that it may stop short, around 8200 points.
The low to date is 8155.5 points. The ASX 200 is adhering to expectations, reinforcing the likelihood that the prevailing interpretation of price action is correct.
Forecast
Exhibit 2 depicts the best interpretation of price behaviour on the weekly high-low chart for the ASX 200.1
This forecast is unrevised from last week.
Wave Structure since early November 2023 is consistent with a NEoWave Diametric (A-B-C-D-E-F-G). This is a Corrective Price Pattern consisting of seven waves or segments: four trending waves (labelled A, C, E, and G) and three countertrend waves (labelled B, D, and F).
Per this interpretation, 23WD is unfolding - Wave D of the Corrective Price Pattern that commenced in 2023.
The most important feature of a Diametric is the similarity in duration and complexity between five of the seven waves. What I am counting as 23WB and 23WC lasted 18.5 and 17 weeks, respectively, so if this is a Diametric, there is a strong probability that 23WD will be similar in duration, which projects to the second last week of March or thereabouts.
My level of conviction in this interpretation will increase if weakness persists into mid- to late March.
When things are not immediately apparent, it suggests the likelihood that the market is not near the end of anything significant. In those instances, you should prioritise the interpretation that places the market as close to the middle of a price pattern (across different timeframes) as possible. This bolsters the likelihood of the Diametric.
Drilling down into 23WD, I suspect it is unfolding as either a NEoWave Neutral Triangle (A-B-C-D-E) or a NEoWave Expanding Triangle (A-B-C-D-E). On the chart above, I only have waves [A], [B], and [C] depicted. Given time considerations, I suspect [C] - the current wave - will have to be the low with [E] a higher low. I am open to whether the low of [C] comes next week with the completion at a higher low in a few weeks, or whether a reasonable bounce comes first and the low and completion of [C] come in a few weeks. Hopefully, things are a little more apparent next week.
For some time, I have affirmed the following:
The target range on the downside remains 7800 to 8050 points, but there is a chance (say 25%) that it may stop short, around 8200 points.
I still think it is likely that 23WD bottoms between 7800 to 8050 points, but I am not betting the farm on that outcome either - see section Risk Management for details.
Smart money
Exhibit 3 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.
As long as the significant disparity between ASX 200 and the Last Hour Index persists, it indicates a heightened probability of unfavourable news on the horizon.
The lag time between this indicator and the benchmark index can be anywhere from several days to several months. In my opinion, the more significant the inflexion point, the greater the lag and the divergence.
Given that the Last Hour Index managed to move higher since February 11 and given that the “vanilla” version of this Indicator (using the benchmark ASX 200 for calculations) is holding up relatively well, this would suggest we are weeks to months away from “whatever it is” becoming evident to the general population.
Market Internals
Exhibit 4 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.
The chart above does not include data for today.
Recently, the AD Line moved above its December peak, suggesting it is highly unlikely a bear market has commenced.
Risk Management
Up until late March, the likely downside range is 7800 to 8050 points.
Looking further ahead, there is likely one more rally to new all-time highs (8615.2 is the current all-time high).
With the ASX 200 closing at 8172.4 points, the risk-reward profile is skewed to the upside over the next six months.
Investment accounts
Some buy orders were filled on Monday, so my portfolios are now 50-60% invested. While I still have a few unfilled orders, I am happy to sit on the sidelines for the most part, watching what unfolds over the next one to two weeks.
Trading Accounts
I have no trading positions at present. I am waiting for greater clarity in terms of the interpretation or evidence of capitulation before opening a levered long multi-month position.
A photo from last week. I hope to be back there on Sunday - I will probably saunter through the nearby Valley of the Seven Lakes, which I have only experienced in Summer and Autumn.
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 quantitative 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: 28-February-2025 16:25
Ljubljana: 28-February-2025 06:25
London: 28-February-2025 05:25
New York: 28-February-2025 01:25
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.