When you were a kid, do you remember wanting or doing something
and being asked by your parent, "Why do you want to do this"?
A child would almost always reply, "Because everyone else is."
Those familiar with this life lesson also know the next part of
the story where the parent replies, "if everyone was jumping off a
bridge, would you want to also?"
The Blind Leading the Blind
On 10/31 I wrote an article (
) entitled, "What the Ultimate Contrarian Indicator is Saying" that
called out Barron's and other magazine covers as excellent
The October 15 issue in Barron's Magazine indeed provided a
great contrarian sell signal for investors. "Dow 14,165, Almost
There" yelled the cover title when the Dow was at 13,325
(NYSEARCA:UDOW). By the next month, the Dow was down 8%
(NYSEARCA:SDOW). Still, after almost four months since that
cover story was published, the Dow (DJI:^DJI) has made little
progress pricewise and has put investors in the way of an 8%
(NYSEARCA:DIA) decline along the way.
Magazine Covers and Sentiment
In Technical Analysis this is called "the cover of the magazine"
sentiment technique. The theory is when the crowd consensus
becomes too lopsided one way, it is usually captured by a popular
media outlet such as magazines. Often that side of the trade
is exhausted by the time the media gets a hold of it and the
opposite actually occurs.
In this case, Barron's was capturing the consensus opinion that
the markets were poised to continue to rally. However, we saw
it differently warning ETF Profit Strategy Newsletter subscribers
on 10/19 "The lack of confirmation (of the uptrend) of market
internals such as breadth and sentiment continues. We are
waiting for prices to maintain below the Fed support zone @ 1430
(NYSEARCA:SPY) to give us a signal an intermediate top is likely
in". On 10/23 that breach occurred saving investors a lot of
headaches as the market fell 8% from its high of 1475 (SNP:^GSPC)
down to 1343 on 11/16.
Another Contrarian Sign?
What about magazine covers now?
Barron's recently released another bold call, this time on
Europe in its 12/24 cover story, "EUROPE: Time to Buy".
As a contrarian it is interesting to me that Europe made the
cover page after an already 15% 2012 rally and a 33% (NYSEARCA:IEV)
rise from its June 2012 lows.
But, Barron's is not alone in their 2013 predictions.
"Europe in Better Shape than US" was the article on 12/11 from CNBC
with strategists suggesting Europe's stocks looked better than U.S
companies in 2013. Bank of America (
) agrees, "The European Union and Asia (NYSEARCA:EEMA) will likely
produce returns between 10% and 16%". The consensus is bullish
The time to put Europe (NYSEARCA:EEM) on its cover was likely
this past summer, after an 18% market decline, not after a 33%
Alas! Barron's in fact did have Europe on its cover this past
summer, but unfortunately for them it was in the exact wrong
Barron's July cover focused on Europe's continued debt crisis
and included its cover shot of the Euro (NYSEARCA:FXE) at parity
with the U.S. dollar implying a European meltdown. A Euro at
parity would mean a 20% fall from where it was when the story went
to press in July.
The Euro has actually rallied 10% since that Barron's
When the media should have been bullish and looking for a trend
change they were predictably bearish, providing yet again another
The Blind Leading the Blind
Given the consensus bullishness now surrounding Europe supported
by strategists, magazine covers, and all the big Wall Street banks,
and after an already strong 2012, we would be hesitant to buy into
the prevailing "wisdom" that Europe is the place to park your money
for 2013. To us it sounds more like recency bias and
Technically, price has reached a momentum extreme at the same
time the Barron's cover article came out (not likely just a
coincidence) . Momentum is also now diverging with
price. A breakdown of a key trendline at $47 on the Vanguard
European VIPERS (NYSEARCA:VGK) would put the uptrend in serious
jeopardy likely setting up a technical sell signal.
If price breaks the support, then Barron's and other
popular mainstream media outlets may once again prove that the
consensus can be a reliable contrarian indicator and a
good tool to use to help identify market turning points. That said,
magazine covers are best used in conjunction with other market
barometers, such as technical analysis, instead of as stand-alone
tools, since the timing of trend changes can sometimes take some
Profit Strategy Newsletter
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published a few times each week focuses on the market's shorter
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