Conventional wisdom holds that magazine cover stories are contrarian indicators - by the time a company’s success or failure reaches the cover page of a major publication the story is so well known as to be completely reflected in the stock price. Therefore, all good news is priced in and the stock can only underperform or all bad news is priced in and the stock can only outperform.

While simplistic, the magazine cover indicator now has the support of recent academic research. This research did find that cover story headlines on Business Week, Fortune and Forbes tended to indicate that the mood (bullish or bearish) of the story had run its course in the market.

As a result of this research, I have decided to develop a portfolio of stocks based on using those three magazine’s covers as a contrary indicator. I also track this portfolio on StockPickr. This week’s results:

Forbes.com - Forbes Magazine Table Of Contents
Money For The Masses
Larry Light
Branch-heavy BofA leads rivals in retail deposits (also overall deposits), ATMs and card balances, which reap fees and interest.

Contrarian take: Stay out of financials, especially BofA. But you knew that already.

Risk returns - with a vengeance

For years big players ignored obvious dangers and reaped rich rewards. Now they are paying for their recklessness, and so is everybody else.  (more)

Contrarian take: Long everything. Risk premia, we hardly knew ye.

My watch lists did not perform as well as the benchmarks this week. The Small Cap Watch List (Track at Marketocracy) lost 2.54%, compared with losses of 2.25% for the Russell 2000 and 1.59% for the S&P Small Cap 600.

The Mid Cap Watch List (Track at Marketocracy) lost 1.96%, compared with 1.32% for the S&P Midcap 400.

The Large Cap Watch List (Track at Marketocracy) lost 1.43% while the S&P 500 lost just 1.19%. At least it is still doing better since inception.

The economic data last week continued the prior trend - mixed with a skew to the weak side.

EconomicData

The Watch Lists generally performed in line with their respective benchmarks this week.

The Small Cap Watch List (Track at Marketocracy) gained 0.5%, compared with gains of 0.4% for the Russell 2000 and 1.05% for the S&P 600.

The Mid Cap Watch List (Track at Marketocracy) gained 0.88%, slightly worse than the 1.09% gain for the S&P 400.

The Large Cap Watch List (Track at Marketocracy) gained 1.39%, more or less in line with the S&P 500’s 1.44%.

With the end of the first quarter approaching, it is time to adjust the names in my Watch Lists. I will price all the new lists as of the close on Friday, June 29.

Today I present my planned updates to the Small Cap Watch List. There was a fairly high level of turnover to the list. 12 of the 24 names from the previous run made it to the current list, which was also 24 names. Performance-wise, the list created in March has returned an unweighted average return of 2.6% through June 28, with 80% of the stocks in positive territory. All of the money-losers from the previous list fell out of consideration.
So without further ado, the names on the chopping block from the previous list are: PW Eagle (PWEI), Insteel Industries (IIIN), Allied Defense (ADG - Annual Report), Hartmarx (HMX), Parlux (PARL), Hansen Natural (HANS), FirstFed Financial (FED), Young Innovations (YDNT), ITT Educational (ESI), Rent-a-Center (RCII), Valassis (VCI), and Travelzoo (TZOO). The castaways include four of the five money losers from the previous portfolio (HMX, PARL, YDNT and TZOO) as well as the biggest gainer (ESI).
The new list is:

I will continue to track both lists on StockPickr.

The Small Cap Watch List (Track at Marketocracy) only gained 0.21% this week, compared to 1.86% for the S&P Small Cap and 1.54% for the Russell 2000.

The Mid Cap Watch List (Track at Marketocracy) did slightly better, gaining 0.73% compared to a 1.42% gain for the S&P Midcap.

Fortunately the 2.28% gain for the Large Cap Watch List (Track at Marketocracy) bested the 1.67% for the S&P 500, which kept me from being swept.

The Small Cap Watch List (Track at Marketocracy) lost 0.7% this week, but that knocked the socks off the 2.49% decline in the S&P Smallcap and the 2.12% loss for the Russell 2000. It also allowed the watch list to pull back even with the S&P small cap on a cumulative basis.

The 2.84% loss for the Mid Cap Watch List (Track at Marketocracy) was a bit worse than the 2.45% loss for the S&P Midcap, making its cumulative lagg even worse.

The Large Cap Watch List (Track at Marketocracy) was the real stinker, though. It lost 3.11% against just 1.87% on the S&P 500. Even that did not eliminate its cumulative outperformance, though.

The watch lists will get a quarterly refresh at the end of the month.

The Watch Lists all posted gains this week, but for the most part they fell short of the more impressive gains posted by the benchmarks.

The Small Cap Watch List (Track at Marketocracy) gained 1.49%, but the Russell 2000 and S&P Small Cap both did better than 2.8%.

The Mid Cap Watch List (Track at Marketocracy) gained 1.26% against a 2.84% gain for the S&P Midcap.

The Large Cap Watch List (Track at Marketocracy) gained ground, however, rising 2.58% against just 1.36% for the S&P 500.

My personal holdings are still bringing up the rear.

As I hoped, the watch list performance rebounded some as the earnings season slowed down.

The Small Cap Watch List (Track at Marketocracy) gained 1.74% this week, easily beating the 0.69% and 0.76% posted by the S&P Small Cap and Russell 2000, respectively. Since inception it still lags the former but is ahead of the latter.

The Mid Cap Watch List (Track at Marketocracy) lost 0.45%, slightly trailing the S&P Midcap’s 0.21% loss, but it maintains a narrow edge since inception.

The Large Cap Watch List (Track at Marketocracy) was a hair above breakeven for the week, which was enough to beat the 0.46% loss in the S&P 500 and maintain its cumulative edge.

The legacy watch list continues to lead the S&P 500, while my own holdings are still bringing up the rear. Why didn’t I just buy one of the Watch Lists?

With earnings season all but over, the Watch List performance stabilized this week. Small Cap Watch List (Track at Marketocracy) lost 59bps for the week, essentially in line with the 56bps and 71bps lost by the S&P Small Cap and Russell 2000, respectively. Since inception the Watch List is trailing the former but maintaining a slight edge over the latter.

The Mid Cap Watch List (Track at Marketocracy) gained 1.1% for the week, against just a 0.46% gain for the S&P Midcap. That helped it regain a cumulative edge.

The Large Cap Watch List (Track at Marketocracy) gained 63bps for the week,  trailing the S&P’s 112bps. It still maintains a narrow lead since inception.

The legacy watch list and Trent’s personal portfolio are also monitored.

Earnings season has the potential to make investors look smart or dumb as stocks tend to have their largest movements during this volatile period. And this particular earnings season is making us look dumb.

Our Small Cap Watch List (Track at Marketocracy) lost 0.34% this week, compared to gains of 0.81% and 0.38% for the S&P Smallcap and Russell 2000, respectively. It has now given up the lead it had built up over the first few months of the year.

The Mid Cap Watch List (Track at Marketocracy) lost 0.49%, compared to a gain of 0.66% for the S&P Midcap and is barely clinging to its own cumulative advantage.

The Large Cap Watch List (Track at Marketocracy) only lost 0.03%, but the S&P 500 gained 0.77%. At least the cumulative advantage hasn’t vanished in this case.

The best performer continues to be the all-cap watch list we created in June 2006 and have updated only to reflect corporate actions such as dividends, mergers and bankruptcy. The worst performer continues to be our cautiously managed personal portfolio.