The Magazine Cover Indicator Explained | Exploring Markets

The Magazine Cover Indicator Explained

The magazine cover indicator is pretty strange.

But if you're an investor, you need to know what it is.

The first thing you need to know about the Magazine Cover Indicator is that it's a contrarian indicator. That means the opposite of what is being said is the more likely outcome. The second thing you have to understand is that this indicator starts and ends in mainstream media. Think of major magazines like Forbes and Bloomberg. Or some investors like to even apply this same indicator to news headlines in the Wall Street Journal or TV programs like CNBC.

The simple fact is this: the media is always late and always too quick jump on a narrative. They need content.

Smart investors, or those who were early, were buying or selling long before the media ever got involved. When the media does start to report on something, it means the move has already been made. The most important price action happens before mainstream media begins to cover the event. That in turn is then why they begin to cover it.

Think about that.

A stock or asset starts to move higher when big or smart money begins to accumulate it. Those are the money managers with teams of people looking for the next big investment. They're making a prediction, sticking to it, and buying the asset en masse. The media, however, is reactionary. Their headlines and insights are a reaction to what the smart money has already accomplished. Look at that rise! Look at this stock up 100% in just a year! These are reactions to what's already happened. If you're thinking of investing or trading after a headline has been written, you're too late.

Without the smart money buying and driving a price up, the media would have nothing to write about.

Here's a perfect example of the Magazine Cover Indicator in action. We saw this post recently. It shows two headlines for the famous investors Bill Ackman and Eddie Lampert. In both instances, the magazine covers are comparing them to Warren Buffett. But are they really like Buffett? No way. Since both covers were published, each investor, Ackman and Lampert, has lost billions. Here's the price of Sears, which is Lampert's biggest holding:

Here's the price of Valeant which was one of Bill Ackman's biggest holdings (he recently sold for a $4 BILLION loss):

And now here's the tweet showing what the Magazine Cover Indicator looks like. A perfect example: