4) The Magazine Cover Indicator
The covers of national news magazines and business publications show what’s
making news today. The markets, on the other hand, are a future discounting
mechanism; They anticipate future events, and reflect them in price and trend.
Magazine covers sell magazines; Covers stories are featured because they are
resonating with the public at that moment. When an editorial committee decides
something is worthy of their publication’s highest profile, it usually means that trend
has already reached its climax.
Why does this work as a contrary indicator? When a magazine covers focus on the
Bear Market for example, its already been priced into the market. Whatever
response the magazine engenders is typically the last spasm of its cover subject.
July 29, 2002 Business Week coincided with market lows
Graphic courtesy of Business Week
July 29, 2002 Time magazine cover
The July 2002, Time Magazine's cover had this title: "Will You Ever Be Able to
Retire?" The accompanying graphic was of an elderly person serving burgers to teens
at a drive-thru window. The implication was that people’s retirement accounts were
so irredeemably damaged that Senior Citizens should plan to work at McDonalds
through their golden years.
July 29, 2002 Time magazine cover story
Graphic Courtesy of Time magazine
The S&P500 chart below shows that the late July magazine covers confirmed the
market bottoms almost perfectly; The subsequent retest in October was successful.
Chart courtesy of Stockcharts.com
It’s not just the popular press that works this way; Even business publications can
mark the top or bottom for both companies and sectors. "The Great Telecom Crash"
was the cover story for July 18th 2002 Economist. That cover story nailed the July
lows in the sector by a matter of days.
“The Great Telecom Crash” Economist story Accompanying graphic, courtesy of The Economist
Telecom index shows late July low
Chart courtesy of Stockcharts.com
The Telecom index chart (above) shows how The Economist caught the exact lows in
the sector nearly perfectly.