How Contrarians View Market Related News
November 26, 2007
When you see the latest market related cover story or hear it on a big financial news station, you might view it totally different than the typical contrarian analyst. This is especially true when it is related to a specific company or sector, and how a related investment decision is made.
The big market related news stories, regardless of the originating media, are used as a tool by the contrarian to gauge sentiment in a particular market, sector or stock. Keep in mind that the reason why a stock or sector is a big new story is that it has an extremely bullish or bearish slant. The story can be perceived in two distinct different ways.
First, it could indicate that the forces driving the shares are fully discounted into the stock’s price and new factors will ultimately determine the direction of future moves. On the other hand, if the new factors are in conflict with what is already known, a big turning point could be at hand that potentially marks a change in trend, which makes it a very important piece of information for the contrarian analyst.
It is important to understand that the objective of the financial media is to maximize sales of each issue or telecast. To achieve this goal the financial media will pounce on the hot topics of the day for their cover stories. In fact, this is why contrarian analysts believe that mainstream magazine covers are a key sentiment indicator.
They assert that when a financial trend is featured on a magazine cover, the chances are that this trend is already widely known, universally accepted and in place for a decent length of time. The contrarian contends that the major business magazines are useful for putting investors on alert that a potential reversal point in the trend might be very near.
The contrarian philosophy believe that usually when an in-depth negative cover story appears it will certainly expose just is what weighing on the shares; however, the contrarian believes that these factors are likely fully factored into the shares. In contrast, an article applauding the benefits of a particular company could suggest that the stock may be at risk of being or becoming a crowded trade. The bottom line is that the contrarian views these big cover stories and hot news items as something already factored in, and is simply a case of stock prices often incorporating the news before the cover story is released.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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