America is back!

Here is the cover of the latest issue of Newsweek magazine. Does it have any significance for the contrarian trader?

In my book I emphasized that the goals of the contrarian trader are to identify stock market crowds as they form and to determine the point at which the crowd begins to disintegrate. I think this cover shows that the extreme bearish sentiment among stock market traders and investors that prevailed only 12 months ago has begun to lift. The bearish crowd of a year ago is well along the path to disintegration. And a bullish crowd may well be forming.

But if a bullish crowd is forming it still has a long way to go before its views dominate the U.S. stock market. This cover is one of the very first significant instances where main stream media are showing more optimism about the U.S. economy. I think economic optimism will eventually translate into stock market optimism (but note this cover doesn't mention the stock market explicitly).

So I conclude that if anything this cover is a buy signal for investors. It shows that a bullish stock market crowd is beginning to form but is still in its youthful stage. As the crowd matures stock prices will go higher. Near the bull market top I expect to see many more positive stories about the economy, and several stories about how well stock market investors are doing.