I would describe the current price action in the equity market as meaningless. It doesn't impart any information to me as the dip is always bought albeit on persistently shorter and shorter time frames. On the other hand, long term Treasury yields are on the rise and breaking out from their current trading range. Rising yields will be a headwind for equities, and are likely a sign of inflation worries.

Figure 1 is a weekly chart of the UltraShort Lehman 20 + year Treasury (symbol: TBT). This 2x leveraged ETF moves in the direction of Treasury yields. The pink labeled price bars are negative divergence bars; in this case, the divergence is between price and a momentum oscillator that measures price. Negative divergence bars are a sign of slowing upside momentum, and typically the highs and lows of these price bars will lead to range bound trading until prices break out. It appears that prices on the TBT are set to close above the highs of the most recent negative divergence bar (look for blue arrows on graph). Often times, this leads to an acceleration in prices as traders, who are short, cover their losing positions.

Figure 1. TBT/ weekly

Adding credence to the "breakout" is the relative strength indicator in the lower panel. This is leading price higher. Lastly, the break of the long term down sloping trend line is quite noticeable. A weekly close below the lows of the recent negative divergence bar at 37.78 and below the down sloping trend line would invalidate the set up (making it a fake out).

Figure 2 is a daily chart of the TBT. The inverted head and shoulders bottom is easily seen with a breakout at $37 that occurred well over a month ago. Support held at $37. The width of the base (i.e., inverted head and shoulders bottom) is 7 TBT points, and adding this to the breakout level gets a price target of $44 for the TBT. I have highlighted the gap at $45; this is good enough for government work.

Figure 2. TBT/ daily

I have been hyping rising long term Treasury yields since October,2010. I believe this represents a headwind for equities. This is a sign thatinvestors are increasingly worried about inflation. Typically, yields rise withan improving economy, but so does the employment rate. As we found out today,the employment picture is far from pretty.