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.