The Drudge Headline Indicator

The Drudge Report, with its 30,000,000 page views per day, is probably the most widely followed news source on the web.  News consumers go to it on a regular basis to get their daily link fix, while those in the media world -- from the major networks and newspapers to independent bloggers -- go to it on a regular basis as well.  While political stories receive the majority of the site's links, it's whatever the site's founder Matt Drudge believes to be the most important topic of the day that gets the main headline at the top of the page. 

The Drudge Report is not a financial news site, so whenever a financial news story grabs the Drudge headline, it means that the story has crossed over from just a financial news story to a mainstream news story.  And when a financial news story crosses over into the mainstream media, it means that those that don't follow the market on a regular basis are suddenly following the market.  This nearly all of the time occurs when the market (or economy, etc.) is going down and not up.

We recently found every Drudge headline at 9 AM, noon and 4 PM on daily basis since 2003 to track the number of stories that were finance related using the Drudge Report's massive archives service.  We essentially wanted to see how often a financial news story was a front-page headline and not just a Money section headline.  From a contrarian perspective, when financial stories dominate the front-page headlines on a regular basis, it's probably getting close to an inflection point for the market, whether it's a bottom or a top.  (We counted any story that involved the economy or any asset class as a finance related headline.)

Below is a chart showing the number of days in which there was a finance related headline on Drudge over a rolling 50-day period since mid-2003.  At our starting point, the market was in the early stages of the 2002-2007 bull market.  Unsurprisingly, the number of finance related headlines hit its peak right around the time that the market made its financial crisis lows.  The max reading of 21 days out of 50 with financial related headlines on Drudge came on February 27th, 2009, which was just 10 days before the S&P 500's bear market low on March 9th.  The number of financial headlines on Drudge then cratered all the way down to zero as the market and the economy recovered from the bear market, but then it started to pick up again a year ago when we had the first real bull market correction due to global sovereign debt worries.

There was once again a drop in finance related headlines in late 2010 and early 2011 as the market continued to surge, but over the past few months, we've seen a huge pickup in these headlines once again.  In fact, even though the stock market here in the US has experienced a relatively small drop since peaking in April, the number of finance related Drudge headlines has reached its highest levels since the depths of the financial crisis.  The problems with the economy here in the US as well as continued debt problems in Greece and other European countries are certainly noteworthy, but the fact that they have taken up so much prime real estate recently on Drudge is intriguing.  One positive about this negative front-page coverage is that the average investor is certainly not being told how great things are.  The market climbs a wall of worry, and when investors become too confident that things are all fine and dandy, it's usually time to sell.  While the stock market has rallied 100% from its lows, a too-confident consumer is a long way off, and that's a bullish sign.  

This is the headline from Drudge on March 5th, 2009, just a few days before the market bottom. 

And this is the headline from this past June 2nd.  Not much difference. 

We definitely plan on tracking these headlines going forward, and we'll post on any noteworthy changes in the 50-day reading.