And so we wait for midweek to roll around. We will hear from Advanced Micro Devices (AMD) and Starbucks (SBUX) after the bel on Tuesday, which will give us another glimpse at the semiconductor sector and the consumer.
Despite being a premium product, Starbucks is one of those discretionary items that its customers seem to hang onto as long as possible. With the vast majority of earnings reports coming in stronger than expected and guidance non-alarming, it would be a surprise to see SBUX come up short. However, if Starbucks can't serve up the goods, the 15% run over the past month will cool quickly. I suspect bears would take us to the 21-day exponential moving average (EMA) around $108, as even the 10-day EMA feels extended.
Not every asset appears content to wait. Sellers of the iShares 20+ Year Treasury Bond ETF (TLT) stepped in aggressively on Monday. The past two months have seen several big intraday candles, most centered around early March. Those candles happened in the 10 days leading up to the most recent Federal Open Market Committee (FOMC) rate decision when Silicon Valley Bank fell apart.
The biggest concern for bulls is the 2023 correlation between TLT and equities. At the start of the year, the SPDR S&P 500 ETF (SPY) marched higher along with TLT. When TLT fell sharply in February, equities followed lower.
Currently, we have the SPY hitting highs and poised to break out, but TLT has a very different look. One could argue it broke down Monday, but I would wait for a close under $102.50 to make that declaration. Bears are set to close that March gap, but will that be enough to stop the exodus?
In my view, not if the Fed hints of more rate hikes to come. If that happens, expect TLT to go sub $100 and equities to follow lower as well. It's the biggest damper on the equity bull breakout campaign right now, so keep it on your watchlist.
