Stocks Charge Ahead as Oil Drops Below $130

Stocks charged full speed ahead as oil dropped for a third straight session and financials rallied after JPMorgan beat expectations.

Oil prices tumbled below $130 a barrel -- down from the all-time peak of $147.27 last week -- as short covering ran out of steam.

Aside from oil's descent, traders note some encouraging signs in the past few sessions.

"We’re starting to see some M&A activity almost on a daily basis – that’s encouraging," Gordon Charlop of Rosenblatt Securities told CNBC. "Volume is back in the house ... and ... yesterday's move -- I thought it was measured. It was sort of like a 45-degree climb, nice and easy, a very gentle way -- proper way -- to go up."

Still, market pros cautioned not to get too excited.

“I don’t think you can say we’re going to take off yet. Obviously there are a lot of underlying issues that have still got to be feted out," Charlop said.

"It's a sucker's rally," Kathy Boyle, president of Chapin Hill Advisors, said of the market's upswing. "If you make money here, don't get greedy."

The problem is that the market is stuck in a "vaccuum" of short-term trades, Citigroup's equity strategists wrote in a note to clients, which implies that there's little or no value in most financials and consumer stocks.

So, what's it going to take to get traders thinking long term again?

"Home price stabilization could turn off the vacuum," Citi said, "just as overly aggressive tech spending marked the end of the tech bubble."

JP Morgan Chase gave traders a reason to jump into financials today.

The brokerage beat market expectations with earnings of 54 cents a share after incurring a $540 million loss linked to the acquisition of troubled investment bank Bear Stearns. Analysts surveyed by Reuters had forecast JP Morgan's earnings at 44 cents a share. Shares surged more than 10 percent, making it the biggest gainer on the Dow.

Financials rallied on the news, with Bank of America Citigroup and Lehman Brothers all up sharply.

JPMorgan's results were an encouraging sign, especially given the better-than-expected report from regional bank Wells Fargo earlier this week but JPMorgan CEO Jamie Dimon remained cautious, saying there will be no dividend increase "until we see clear daylight."

Wells Fargo is picking up mortgage applications from former competitors, CFO Howard Atkins told CNBC.

More earnings from the financial sector are on the way this week, with Merrill Lynch due out after the bell today and Citigroup before the bell Friday.

Merrill Lynch, seeking to shore up its capital, agreed to sell its 20 percent stake in Bloomberg back to the media company for $4.5 billion but decided to keep its 49 percent stake in BlackRock .

Among other Dow components reporting this morning, Coca-Cola beat expectations with a profit of $1.01 a share; analysts had expected 96 cents a share. United Technologies beat expectations by two cents, with earnings of $1.32 a share, and also raised its outlook.

Economic data also gave the market a boost.

Housing starts unexpectedly jumped 9.1 percent to a 1.066 million annual rate in June and building permits increased 11.6 percent. New construction on single-family homes, however, fell. The sharp rise in overall starts was mostly due to a change in New York City building codes, that, if excluded, would've left starts down 4 percent.

Fannie Mae and Freddie Mac rallied for a second straight day after Freddie Mac completed its second successful debt sale this week, calming fears after a government bailout of the mortgage-finance companies. Both stocks were up about 20 percent.

In other economic news, the Philadelphia Federal Reserve reported its manufacturing index came in at minus 16.3 in July from minus 17.1 in June; economists had expected minus 15. Prices paid rose while employment was down.

Jobless claims rose by 18,000 -- nearly half of what was expected -- last week but claims were still at the highest level since last June. This followed a sharp drop in the prior week but claims data are volatile this time of year due to annual auto-plant shutdowns for retooling.

General Motors shares