Time's bull-market cover may signal a top is near
Once a big idea becomes part of the national dialogue, a veteran money manager says, it loses its force and fades. His conclusion: Stocks may well be lower in a year.
More than a few of us who saw Time magazine's cover for this week said to themselves, "Uh oh."
The cover, as you can see here, shows an image of a snarky bull, wearing a party hat and sunglasses standing among confetti. The text says "How Wall Street won: Five years after the crash, it could happen all over again."
What the cover suggests to Newport News, Va., money manager Paul Montgomery is two things:
First, the market has reached or is near a top.
Second, the market has an 80% chance of being lower a year from now.
The Dow Jones industrials' ($INDU) current peak close is 15,658.36 set on Aug. 2. The blue chips closed up 119 points to 15,495 on Monday after reaching as high as 15,550. The Nasdaq Composite Index ($COMPX) hit a 13-year high of 3,756.24 right after Monday's open but faded back to 3,718, down four points.
The Standard & Poor's 500 Index ($INX) hit 1,705 around noon ET before dropping back to 1,698, a gain of nearly 10 points. The S&P 500's push above 1,700 was its first since Aug. 8. The intraday high was the highest since Aug. 6.
The Dow and S&P 500 highs may not be market's peaks for this cycle; Montgomery believes the indexes may set new records in the next six weeks. And then comes the slide.
You can get all this from a magazine cover?
Yes, Montgomery said Monday. The covers are a reflection of how deeply an idea has saturated the national consciousness. Once an idea -- in this case, the bull market -- has become dispersed throughout the population, it can't go much further.
Wait, but the text doesn't suggest the bull market is here to stay. Quite the opposite. True, Montgomery said. But it is the image that will catch people's eyes first. That's what counts. The image suggests there's a bull market going on, and its days may be numbered.
To be sure, lots of people have been saying the market is too high and needs to fall back. Montgomery's theory suggests the market will probably fall back.
Montgomery started to study the effect of magazine covers on markets when he was an analyst with Legg Mason in Baltimore, where he worked for about 30 years. He is now the CEO of Montgomery Capital and editor of a newsletter, Universal Economics.
He's seen this happen on multiple occasions. Consider Time's Dec. 27, 1999, issue, when the magazine named Amazon.com (AMZN) founder Jeff Bezos "Person of the Year." The magazine itself came out around Dec. 20. Amazon shares had a closing peak at $106.69 on Dec. 10.
The market crashed with the bursting of the dot-com bubble in 2000 and the Sept. 11, 2001, terror attacks. Amazon shares totally fell apart. The closing low was $5.97 on Sept. 28, 2001, with an intraday low of $5.51 on Oct. 1, 2001. The stock wouldn't see $100 again until Oct. 23, 2009.
Or, since we're dealing with the fifth year after the Lehman Bros. collapse, look at Time's cover on June 13, 2005. An image shows a man hugging his house. The text on the cover is: "Home $weet Home: Why we're going gaga over real estate."
Existing home sales, according to data from the National Association of Realtors, peaked at an annualized 7.25 million units in September 2005 (seasonally adjusted). The NAR estimated sales in September 2006 at 6.28 million units annualized.
The bottom came in July 2010 at 3.39 million units, a decline of 53.2% from the peak. The report was released just after the Sept. 6, 2010, Time cover talked about "Rethinking homeownership: Why owning a home may no longer make economic sense."
Existing home sales are up 59% since.
The Russell 2000 Index hit an all-time intraday high Monday morning before it, too, slipped back to 1,056, up 2 points.
The Nasdaq was weighed down by Apple (AAPL), which closed down $14.78 to $450.12. Apple's decline subtracted 12 points from the the Nasdaq-100 Index ($NDX) and was the primary reason the index fell nearly 10 points to 3,169.
Twenty-six of the 30 Dow components were higher, led by Boeing (BA), up $4.34 to $115.67, and General Electric (GE), up 36 cents to $24.14. A total of 405 S&P 500 stocks were higher, led by Allegheny Technologies (ATI) and Boeing. Apple and chip maker Altera (ALTR) were the laggards.
Seventy Nasdaq-100 stocks were higher, led by Broadcom (BRCM) and Expedia (EXPE), up 81 cents to $26.91, and $1.23 to $52.42, respectively. Facebook (FB), down $1.80 to $42.51, and Apple were the biggest biggest percentage losers.
Crude oil in New York fell $1.62 to $106.59 a barrel. Brent crude was down $3.12 to $109.66 a barrel. But the price of gasoline nationally averaged $3.517 a gallon on Monday, according to AAA's Daily Fuel Gauge Report. That was down from $3.54 on Friday and down 1.9% in September.
Gold rose $9.20 to $1,317.80 an ounce. The 10-year Treasury yield was 2.874% on Monday, down from Friday's 2.898% on Friday.
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no mention yet of one of the best indicators of all time - google on "AAII sentiment survey" to see how the crowd at the American Association of Individual Investors has migrated from the bearish and neutral camps over to almost 50% bullish. this is a proven historical contrarian indicator - not exact timing but it definitely buttresses the point made in this article.
what me worry? just shovel it all in there and party on "snarky bulls" everywhere .... the road goes on forever and the party never ends ... joe kernan told me so on cnbc: "the train is leaving the station" and investors don't even need advisors any longer ....
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