Magazine Covers as a Contrarian Indicator
There are many theories out there regarding where the market is headed. I’m going to define the market as the generic Dow and S&P stock indices. Some economists and analysts predict a quick turnaround in 2009, while others predict a much more dire future.
One simple way for us to make an educated guess is to use magazine covers as a contrarian indicator. The theory is that by the time a market’s success or failure reaches the cover page of a major publication, that market will have already been overbought or oversold. The theory plays don the idea of crowd psychology, whereby peaks and troughs occur when the general population gets in or gets out. Thus, all good news are met with underperformance while all bad news are met with overperformance.
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