Did Economist China Cover Mark Near-Term Bottom?
Mercenary Trader | Aug 28, 2015 05:35AM ET
I’ve been an Economist reader since the mid-1990s. The covers are one of the best things about the magazine. They are always creative and often amusing.
The Economist cover from March of 1999 — which I have in my collection — is probably one of the most iconic “contrarian bottom signals” of all time. When that issue came out, the price of oil was hovering around $10 per barrel. The lead story discussed expectation that a relentless oil glut would drive the crude price into single digits, and even down to $5 per barrel.
It was a fantastic bottom call — not on purpose, but by accident. Speculators who backed up the truck on long-dated oil futures, and then held for years, would have made huge fortunes.
Why is the “magazine cover indicator” sometimes (though not always) useful?
As with other potentially useful sentiment tools, there is no magical power or iron-clad relationship at work. The magazine cover indicator is simply an expression of awareness coupled with odds and probabilities. By the time a trend is so well known as to be shouted from the covers of magazines, probability has increased that the fundamentals behind that trend are fully “priced in,” or close to it, and the move has nearly run its course.
A cousin of the magazine cover indicator is “the mother-in-law indicator,” in which you occasionally catch market opinions over dinner from a relative — like your mother-in-law — who normally pays very little attention to the financial world. The idea again relates to saturation. By the time news of a trend filters down to this wonderfully out-of-touch person, maximum saturation is at hand. If she thinks such-and-such sounds like a buy, it is more likely time to sell, and so on.
You can’t use this stuff like a guarantee of course. Sentiment indicators in particular are notoriously squishy. It is more about “tells” or added factors in the weighing of possible outcomes.
With that said, the latest Economist cover is intriguing, shown below and paired with a monthly FXI chart:
Disclosure: This content is general info only, not to be taken as investment advice. Click here for disclaimer
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