I wanted to post a reminder about what the “Magazine Cover Indicator” is and is not. This discussion was spurred by a recent Barron’s Dow 30,000 covers on January 17, 2020 (as the chart above shows, there have been others).
Lay people tend to misunderstand this — often it is just an exercise in some confirmation bias, rather than engaging in a form of contrary indicator analysis.
What is the Magazine Cover Indicator? As noted in 2014:
“Created by Paul Macrae Montgomery, this contrary indicator essentially tells us when some investment theme or fad has reached a crescendo. The thinking goes that by the time the editors of Time find out about some hot investing trend, it is all over but the crying.
As Montgomery described it, there are three primary rules for the classic magazine-cover indicator. First, it must be a mainstream — not business — publication that put a specific object on its cover. Second, we are looking for a well-understood concept that is reaching a climax. And third, there must have been significant asset-price gains leading up to the cover.”
To me, the bigger question surrounding the Magazine Cover Indicator is not whether it works or not; rather, it is whether it will still exist when traditional mainstream print publications no longer do . . .
Update: January 22, 2020, 9:14am
Misunderstanding the Magazine Cover Indicator (October 27, 2014)
NYT Sunday Business: Magazine Cover Indicator? (January 1, 2012)
The Single Company Magazine Cover Indicator (March 20, 2006)
The NYT, Magazine Cover Indicator, and Mean Reversion (August 19, 2007)