MAGAZINE COVER INDICATOR
Or, how to be a contrarian
Read an interesting article in the Times today. Apparently, one of the broking firms has come out with a report on the validity of magazine covers as a contra indicator. While this may appear something new to a few of us, it has been quite a prevalent thing overseas for a long time. I recall attending one seminar by Tom Dorsey back in 1999 in the US where he did an entire 2 hour seminar on just magazine covers! An amusing anecdote of his presentation which I still remember is the one where he flabbergasted the magazine kiosk owner when he bought an issue of Playboy, tore off the cover and dumped the rest of the magazine in the dustbin! The cover of Playboy for that issue featured some market call and Dorsey’s view was that when market news starts to appear on covers of magazines that have no business featuring stock market stories, it is time for a change in trend!
Time and again, I have found this to be the case. This is most certainly nothing new. Remember my oft repeated maxim for the market? It is not the news but the reaction of the market to the news that is important. The magazine cover thing is a variant of this aspect. Same with newspaper articles and headlines. So often, we read some news that appears positive or negative to us. But the market either fails to respond to this news or actually responds in an entirely opposite manner. Novices are dumb founded but professionals see thru this ruse easily. In fact, in Linda Raschke’s book, Street Smarts, they have a technique in it called News Gap reversal! This is a way of taking advantage by going against all the suckers who were pulled in on the news. The magazine cover thing is just an expansion of this same concept. Remember the covers have more impact, what with bombastic statements and illustrations and raising all sorts of questions in the article within. Thus the overall public responds more to such magazine articles and typically, such covers appear only when the market becomes the talk in the party circuits or is a matter of big concern to many. Thus the magazines feature the markets on the cover when the sentiment is already primed towards the extreme either up or down.
For those who like this sort of thing, a good read would be Robert Prechter’s take on socionomics where he expounds on matters like these and their impact on the market trends. Not too many people look at Prechter’s work favorably but in my view, that man is a total genius. His wide vistas of observation and correlations are unmatched by any of the current people commenting on the market. That he has been vilified for 20 years now and is still around and listened to, should tell you something of the genius of the man. And no, it is not just because the marketing is good.
Coming back to the main point, magazine covers are indeed good contra indicators. The PM on Time magazine cover is indeed a sign. But is it ‘the’ sign of the bottom? I don’t know. But I am glad someone thought it fit enough to do this exercise and put out a report. Kudos to that analyst! We need more like him around as compared to a lot of others who prefer and remain content in beating the same track.