Breadth Thrusts & Bread Crusts: Evidence of a Butterfly? Yes. Of a Bull Market? Not So Much.

JC Parets
July 14, 2022

From the desk of Willie Delwiche.

I'm watching a butterfly emerge from a chrysalis.

Literally.

I’m not conjuring a metaphor. This is happening in real life… in a jar on my desk.

A few weeks back, I found some Black Swallowtail caterpillars in my dill patch. I collected several, provided a steady supply of fresh dill, and watched them grow big and plump.

Eventually, they attached themselves to a stick, shed their caterpillar skins and have spent the last couple of weeks undergoing an amazing metamorphosis inside their chrysalis.

Reorganization complete, they are now emerging anew.

It's awe-inspiring stuff.

When we are observant, we can find plenty to puzzle over and wonder about all around us – in our backyards, in our state and national parks, or in the heavens above. (This perspective from Louis Sykes on the images being produced by the James Webb Space Telescope is right on.)

It’s humbling to ponder over mysteries that we cannot figure out. It’s empowering to watch (and in a small way, participate in) processes that we don’t really understand. We don’t have it all figured out. In fact, we probably have less of it actually figured out than we think.

Learning how to say “I don’t know” is a valuable skill.

Back to the chrysalis emerging from a caterpillar and the butterfly emerging from a chrysalis. I don't know how it happens or when it will happen. But when it is time, I can see that it is happening. After the fact, when a butterfly is perched on a stick, stretching and flexing its wings for the first time, I know that it has happened.

Financial markets can seem mundane after considering the mysteries of the cosmos or the transformation that takes place inside a chrysalis, but a similarity of approach can be useful.

In the case of the current bear market in stocks, I don’t know the date or the level at which the S&P 500 will bottom. Perhaps it already has. There is little evidence of that, but it is a possibility. While the timing and level are uncertain, we do know what it tends to look like when a new bull market is emerging.

Our Bull Market Rebirth Checklist is a great tool in this respect. It’s not about predicting the future but observing the present and considering the evidence at hand.

For now, our checklist remains shut out. Evidence of a new bull market is lacking. In such an environment, liquidity is an asset and patience is a virtue.

Meanwhile, in the jar on my desk, there is overwhelming evidence that a new butterfly is at hand.

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