Why the 'magazine indicator' still works for modern investors
The stock market's worst opening six months of a year five decades is in the books.
And the financial printing presses have been cranking into overdrive to hammer home just how bad things have been for investors.
A few weeks back — just after the S&P 500 sunk to another gut-wrenching yearly low — Barron's featured a giant downward-sloping stock chart with the caption: "How to keep up in a down market."
The same week, Bloomberg Businessweek treated its readers to a giant air sick bag with the words: "Feeling unwell? For market upheaval, economic turbulence, and other discomforts."
These stories reflect the zeitgeist, though traders reading the tea leaves may look at them as potential contrarian indicators.
JC Parets, CMT, founder and chief strategist at allstarcharts.com, joined Yahoo Finance Uncut recently and broke down the psychology behind why print magazines — and even new financial products — can be contrarian signals.
"Journalists traditionally do an awesome job at aggregating consumer sentiment and investor sentiment," Parets said, stressing that magazine covers and other features take time to plan, develop, and eventually publish.
And that time lag is where Parets says the opportunity lies for investors.
"By the time you actually get that on the cover, it's usually pretty late in the cycle," Parets said.
Case in point — just before stocks peaked in February 2020, The Economist featured five titanium bulls with corporate logos emblazoned on their heads — one for Apple (AAPL) Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), and then-Facebook (META).
"Big tech's $2trn bull run" was the title, and we can imagine those bulls charging through the dust and right off a cliff when stocks rolled over into a raging bear market.
Perhaps the most famous example of all time is the 1979 Businessweek cover story: "The death of equities." It was a couple years early, but this story nicely teed up the two-decade secular bull market that ran throughout the '80s and '90s.
This cover is so famous, in fact, that Bloomberg — which now owns the weekly publication — wrote an article about its forty-year anniversary.
There's also a parallel with new financial products, in Parets' view, where crypto serves as an instructive recent example.
The first bitcoin futures were famously launched in December 2017 — right as a crypto mania that nearly sent bitcoin to $20,000 peaked before a years-long "crypto winter."
After the surge to record highs in 2021, the largest U.S. crypto exchange — Coinbase (COIN) — took advantage of the enthusiasm and went public. After a relatively mild dip (by crypto standards), the first U.S. bitcoin ETF launched — just in time to lure in future HODLers.
Since the October 2021 launch of the first Bitcoin futures ETF, bitcoin is down nearly 70%.
"[The ETF companies] aggregate consumer and investor sentiment ... By the time you get everything approved, it's usually late in the cycle for very similar reasons," Parets said.
And as the 'magazine indicator' would dictate, the ProShares Short Bitcoin ETF (BITI) launched only last month after bitcoin had crashed 70%. Parets quipped: "Where was this a year ago?"
While many crypto enthusiasts are calling for BITI to bottom-tick bitcoin, this new ETF up 14% from its opening trade in late June — and is already the second-biggest U.S. bitcoin ETF.
Recent examples go beyond the crypto markets, however.
In late 2020 — just as SPAC mania was really heating up — the much-anticipated Defiance Next Gen SPAC Derived ETF (SPAK) listed. After a rally into early 2021, the ETF topped out and is now down over 60%.
It's a similar story for the Roundhill Ball Metaverse ETF (METV). The fund launched last summer, peaked into November, and then got cut in half — much like Meta Platforms itself. (It was Roundhill that gave — or maybe sold — Meta its META ticker.)
Coming back to the present, those recent Barron's and Businessweek covers touting the current financial maelstrom were published the very weekend after the market's most recent lows were made.
Today, most traders don't think this bear market is over. But we'll soon enough learn if these editions once again presaged a flashy rallies for which bear markets are famous. Or, perhaps, something bigger.
Jared Blikre is a reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared.
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