07 June 2005

Billmon: Covering the Top

Most people who play or watch the financial markets are familiar with the magazine cover indicator, a forecasting theory which holds that when the major news magazines -- Time, Newsweek, Fortune, etc. -- put a hot market trend on their cover, said trend is ripe for a major reversal.

It's a simple contrarian concept, based on the idea that if magazine editors (who are usually the last to figure anything out) are excited about a particular market, then just about every possible investor must have already piled into it, and will soon realize there are no greater fools left to follow them -- at least, not until prices have fallen a long, long way.

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