Journalists are excellent at telling compelling stories about what already happened.
They’re great at capturing the mood. What people are worried about. What they’re afraid about. What they’re scared of missing or terrified of losing.
That’s their job, and they’re good at it.
Our job is different.
We’re not here to tell stories. We’re here to make money in the market.
That difference matters.
By the time a narrative becomes clear enough to write about, design cover art around, approve, print, and ship to newsstands, the market has usually moved on.
In many cases, it’s already completed the trade. Often, it’s getting ready to do the opposite.
This isn’t a theory. It’s a pattern.
Last quarter alone, I spent three full Lab Training sessions walking through real examples of magazine covers acting as contrarian signals throughout history.
We covered a century of data and barely scratched the surface. There are so many examples that a fourth and fifth session are probably inevitable.
And, judging by the covers we’re seeing already this year, we’re going to need them.
Because, once again, the stories being sold on magazine racks look nothing like what prices are actually doing.
And that disconnect is where opportunity lives.
Bloomberg Businessweek Strikes Again
They’re off to a strong start this year.
Just two weeks ago, we talked about the bubble splashed across the cover of Bloomberg Businessweek.
Now, this week, they follow it up with a giant red rollercoaster, doing their best to make sure anyone who sees it is properly terrified about the year ahead:
This is usually how the most actionable magazine covers look. Big. Bold. Creative. Unforgettable.
Think back to November, when The Economist ran that upside down skier buried in the snow, with his skis turned into red arrows pointing lower and even the snow on his backside shaped like a world map.
That one was incredible.
And what happened next?
Markets did the exact opposite.
Instead of “toppling the economy,” stocks went almost straight up. Just ten weeks later, every major index is much higher. Small-caps are up nearly 12 percent. Micro-caps are up about 16 percent.
That’s how this works.
By the time the fear is creative enough to make the cover, the market has already moved on.
And, more often than not, it’s setting up to do the opposite.
The Trump Effect
The New Yorker didn’t want to be left out.
The Economist tends to give us more frequent contrarian gems, but every so often The New Yorker delivers a cover that demands attention.
Last week was one of those moments, with an illustration of Donald Trump chugging oil straight from the barrel:
The timing was perfect.
After hitting multi-year lows last month, crude oil closed this week at its highest level since October.
Too clean?
Too obvious?
Could it really be that simple?
Here’s the chart of crude oil, marked at the exact moment that cover hit the shelves:
Some of you think this sounds crazy. But this isn’t hindsight. This is the same real-time evidence I’ve been showing you for years.
Some of these covers are so over the top that I honestly have to double check they are real. I did it with the upside down skier.
I did it again with Trump shirtless on the cover of The Economist riding a polar bear.
I couldn’t believe it until I saw it on their own website.
Yes, this is real:
So, what do we do with this? Is it just a funny coincidence? A chuckle between trading sessions?
Not even close.
These are actionable signals.
When the narrative screams one thing and price action does the opposite, that’s the tell.
I’ve studied this phenomenon going back over a century. The pattern doesn’t change.
What it tells me right now is simple: The media is still overly pessimistic. They’re not buying into the strength in equities.
They’re trying to scare you into believing this will be a wild rollercoaster year.
Meanwhile, oil prices are breaking higher.
This reminds me of the March 1999 Economist cover, “Drowning in oil,” published just before one of the most powerful crude oil rallies of all time:
History repeats.
The assets change.
The stories get updated.
But human behavior stays the same.
So, the question is not whether this works. The question is, what are going to do about it?
I know what I’m doing. You can see it in my Divergence model portfolio. I’m not buying the bearish rollercoaster story.
I’m adding to energy exposure as prices continue to resolve higher.
I think they’re all wrong.
And I plan on profiting from just how wrong they are.
This Week in Everybody’s Wrong
On Monday, we looked at what happens when leaders stop leading.
The Mag 7 rolled over, but rotation is happening beneath the surface.
As always, we’ll do more of what’s working, less of what’s not working.
On Tuesday, we reviewed lessons you have to learn the hard way.
What other people do with their money is none of my business.
Indeed, price, trend, and probability are all that matter.
On Wednesday, we asked whether U.S. dominance of the stock market is finally starting to slip.
This is a dollar story, and it’s a rotation story.
We plan to keep our minds open, follow the evidence, and stay flexible.
On Thursday, we took a look at the bond market.
We’re always looking for divergences, and we can get a lot of information about stocks from bonds.
Bottom line, if stocks are about to come under real pressure, you’re going to see it in bonds first.
On Friday, we analyzed the behavior of healthy bull markets in terms of what we’re seeing right now.
Participation is broadening, and leadership is expanding.
And that means the market is getting stronger, not weaker, beneath the surface.
On Saturday, Sam Gatlin showed us once more that he’s one of the sharpest young minds in the technical analysis game.
He already seems to see and hear things with the eyes and ears of an old-timer (and I mean that as a compliment…)
Here’s Sam with more fresh thoughts and ideas about energy and the U.S. dollar.
Have a great Sunday.
We’ll see you Monday morning…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs