ASX 200 Forecast 2025-Mar-07
Bounce to start sometime next week?
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. It should be close to completion in terms of price and time.
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 7948.2 points, losing 224.15 points or 2.7% for the week.
Exhibit 1 illustrates the price movement for the ASX 200 during the past week.
For the last few weeks, I have 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 ASX 200 fell as far as 7946.4 points today. With the benchmark index adhering to expectations, it reinforces 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. 23WD is currently 14 weeks.
Now, the five waves should be very similar in duration but not identical. And given seasonal considerations - see Section Seasonality - I suspect we will see the low of 23WD late next week or possibly the week after.
While the chart above does not depict it, I suspect 23WD is unfolding as a NEoWave Neutral Triangle (A-B-C-D-E). 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 will add these extra waves to the chart 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.
7800 is the likely limit on the downside if a Neutral Triangle is the correct interpretation. The “Likely limit” means that it generally goes no further than that in at least 90% of all instances.
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 ahead.
Regarding the short term, however, the Last Hour Index has moved higher since February 11. Moreover, the “vanilla” version of this Indicator (using the benchmark ASX 200 for calculations without the close - the version I used to present) just moved to a new all-time high.
This suggests we are still months away from whatever it is coming down the pipeline becomes obvious.
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, confirming the recent rally to new all-time highs. This suggests it is highly unlikely that a bear market has commenced.
Seasonality
"At long last, science appears to be catching up with what technical analysts have been telling us for more than a century. As one recent scientific article concludes, the changing seasons may be a “fundamental source of variability in how people think, feel, and behave."
— Daniel Goulding, The seasonal outlook for 2024, FNArena
Seasonality is a factor I take seriously.
In academic circles, it is an “anomaly” because it should not exist per the conventional model of the finance universe.
But it does. At times, its influence can be negligible when logic is in the driver’s seat. At other times, when uncertainty is rife or there is blood running in the streets, emotions are the trump card.
As an analyst, investor and trader, I pay special attention to the March equinox and the moon phases that occur in this month.
Three of the five largest declines this millennium have bottomed in March.
The 2003 low occurred 3 trading days before a full moon, the 2009 low occurred 1 trading day before a full moon and the 2020 low occurred 1 day before a new moon.
The next full moon is 14 March. The March equinox is March 20.
Using seasonality in isolation, I suspect we will see a bottom late next week or early the week after. This gels well with Wave Structure.
Risk Management
The likely limit on the downside is 7800.
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 7948.2 points, the risk-reward profile is skewed to the upside over the next three to six months.
Investment accounts
One buy order was filled during the week.
I suspect my portfolios will be fully invested sometime within the next two weeks.
Trading Accounts
I have no trading positions at present. I am eager to go levered long.
From Monday morning. The Komna Plateau of the Julian Alps of Slovenia.
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: 07-March-2025 16:30
Ljubljana: 07-March-2025 06:30
London: 07-March-2025 05:30
New York: 07-March-2025 01:30
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.