AIRLINES AND RETAILERS ARE STONG -- THEIR STOCK LEADERS -- RISING STOCKS MEAN RISING RATES

LEADING A RECOVERY... Earlier today, I pointed out that small caps and technology stocks were leading an upside breakout in the stock market. That's a good sign, because leadership by those two groups is usually seen in the early stages of an economic recovery. I've also mentioned before that transportation leadership is another sign of a stronger economy. [A lot of that is tied to weaker oil prices]. It's no surprise then to see transportation stocks among today's biggest percentage gainers -- especially the airlines. Chart 1 shows the Airline Index hitting a new fifteen-month high. Superior performance by consumer discretionary stocks (which are mainly in the retail area) is also a good sign, since it shows rising consumer confidence. That's why it's encouraging to see that sector doing so well today. Chart 2 shows the Consumer Discretionary Select Sector SPDR breaking out to a new sixteen-month high today. Retailers are the biggest gainers in that group today.

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RETAIL LEADERS... Three of today's retail leaders are shown below. Limited is on the verge of exceeding its August high. TJX is moving up to challenge the highs of the past two years. Tiffany is close to a bullish breakout through its 2002 high near 41. The monthly chart of Tiffany in Chart 6 shows that an upside breakout through that barrier would set up a test of its old high at 45.

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AIRLINE LEADERS... AMR and Continental are hitting new 52-week highs to lead a strong airline group higher. Northwest Air is also having a strong day. Over on the Nasdaq, Ryanair Holdings is moving up toward its high for the past year.

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ECONOMIC STRENGTH IS GOOD FOR STOCKS, BUT BAD FOR BONDS... Today's strong job report is having the expected intermarket reaction. Stocks are up, while bond prices are down. In yesterday's update, I talked about rising industrial metals signalling stronger global economic growth. That's good news for stocks. However, I also pointed out that stronger economic growth (and more commodity inflation) usually results in higher interest rates. That's bad for bonds. We're seeing that pattern today. The Dow is resuming its cyclical bull market along with all of the other major stock indexes. At the same time, the 10-year T-note yield is bouncing off its 200-day moving average. That's what is to be expected in a rising economy -- rising stocks and rising interest rates.

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BLOOMBERG INTERVIEW THIS AFTERNOON... I'm heading into New York shortly to do a TV interview on Bloomberg TV this afternoon. I'm scheduled to be on a 3:39 pm (NYT). Take a look if you can.