Stocks Flower as Oil Curdles

Those technical factors combined with investors "cheering the better economic data" and "coming to terms with no rate cuts" to make for a strong rally, says Diamond.

The rotation into technology stocks continued: Shares of Microsoft(MSFT Quote), Intel(INTC Quote), eBay(EBAY Quote) and Level 3 Communications(LVLT Quote) surged between 1.8% and 7.5%.

Shares of Internet companies such as Yahoo!(YHOO Quote) and Google(GOOG Quote) also gained over 1% on the day.

Apple's(AAPL Quote) stellar run this week came to a halt Thursday as its shares fell 1.2% on news that Cisco Systems(CSCO Quote) is suing Apple for trademark infringement for the name "iPhone." Shares of Cisco were up a fraction.

The price of oil plummeted another 4% Thursday, putting light, sweet crude at $51.88 per barrel. The oil stocks were therefore unable to participate in the day's rally, but the bleeding wasn't as bad as it has been in recent days. The Oil Services HOLDRs(OIH Quote) exchange-traded fund fell 1%, but shares of Exxon Mobil(XOM Quote) slipped only a fraction, and BP(BP Quote) actually added 0.2%. Also, Valero (VLO Quote) and Sunoco (SUN Quote) were upgraded by Sanford Bernstein and gained about 1% each.

While stocks rejoiced, the day was dark for U.S. Treasury bond traders, who recognized that an example from overseas reveals a threat.

Treasury bond traders were shocked by the Bank of England's surprise hike of its overnight lending rate to 5.25%. The BOE's decision was a harsh reminder for Treasury traders that U.S. monetary policy might follow in kind. With each piece of strong U.S. economic data, the likelihood of a rate cut falls. Indeed, the fed funds futures market has pushed out the odds of first rate cut to August. Traders focused on the idea that England's economy has reaccelerated after a massive housing market boom and bust. Sound familiar?