This post Are You Wasting Your Time with This Weird Indicator? appeared first on Daily Reckoning.
Everyone went gaga over Dow 20,000.
The financial media had a field day when the Dow crossed the magical 20,000 mark on a cold morning back in February.
But the Dow teased investors countless times before finally making the leap. The financial press was already whipped into a frenzy by December, only to have to wait two agonizing months for the breakout.
“Does that mean it’s time to bet against the market?” we asked back in December 2016.
Just look at that bullish headline. Barron’s was bulled up on stocks again. The party hats were on order. If we were smart, we’d bet against the bulls, right?
I don’t think so.
Look, there are tons of dumb market sentiment indicators out there. But there’s one in particular that folks take way too seriously: the magazine cover indicator.
Today, I’m going to reveal the truth about the “magazine cover indicator” and why so many investors make such a big mistake when they try to use it as a timing tool.
Here’s how it’s supposed to work: When some major magazine like Business Week is bearish on stocks or some other asset class, you should start getting bullish. If the cover is bullish, that’s your warning to get the heck out.
In other words, when the mainstream press says one thing, do another.
But is it a reliable strategy?
Nope.
The myth of the “magazine cover indicator” got its start with the infamous 1979 “Death of Equities” Business Week cover. America had just endured the stagflation seventies—and no one in command of his senses could fathom a return of a bull market for stocks.
And we all know how that turned out…
The “Death of Equities” cover didn’t perfectly sync up with the raging bull that would follow. But it was damn close.
So there you have it. Dead simple. All you need to do is look at the mainstream media, do the opposite just like George Costanza would, and presto—instant riches!
If only…
There are some critical nuances you need to understand before you begin relying on anecdotal sentiment readings like the magazine cover indicator.
First up is hindsight. Anybody can pick out the media hype leading up to a market extreme when they’re looking in the rear view mirror. Yes, there’s the “Home $weet Home” Time magazine cover from 2005 – the very peak of the housing bubble. And if you want to get a little creative, you also have Amazon CEO Jeff Bezos getting the “Man of the Year” nod from Time back in 1999, just before the dot-com boom went bust.
But here’s the thing… There were plenty of previous bullish cover stories on housing leading up to the Time article that could have marked the top. Same goes for the 90s dot-com bubble. These stories weren’t rare. But as it turns out, they were worthless as a contrarian indicator…
Did any of your genius contrarian friends sell their positions at any of these previous points …read more
Source:: Daily Reckoning feed
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