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Market Insider: Fizzle or Pop?

Tuesday's frothy rally could quickly fizzle, but traders are holding out hope that it won't.

"It's been a long time coming," said Cowen trader Todd Leone of the stock market's 6 percent pop. "I'm hoping we made a short term bottom and I'm hoping the market will keep bouncing back, but we'll see. Tomorrow is a big day."

Leone said alot of the action late in the day was from programs. "The sell offs are exaggerated. The buying is exaggerated. I don't think anyone in the world is expecting it to be up tomorrow," he said.

Some traders say the rally looks better than the most recent rallies, but they are wary that it will be short lived, taking the S&P at most another 10 percent or so higher.

    • Playing ETF Dividend Hopscotch

Stocks bounced Tuesday after Citigroup sparked hope for the battered financial sector. Citi CEO Vikram Pandit said the company was profitablein the first two months of 2009, and he is confident about its capital strength. The market, itching to go higher, also pounced on comments from Rep. Barney Frank that the "uptick" rule on short selling would be reinstated in the next month. Financial stocks soared 15 percent, as investors shrugged off the fears that dragged the financials down 19 percent last week.

Comments from Fed Chairman Ben Bernanke, who called for bank reform Tuesday, were also supportive. The Dow jumped 379 or 5.8 percent to 6926 and the S&P 500 rose 43 or 6.4 percent to 719. The Nasdaq shot up 7 percent to 1358, an increase of 89 points.

Wayne Kaufman of John Thomas Financial said there has been a lot of call buying and optimism. On "Closing Bell" Tuesday, he said he wants to see what the follow through looks like. "This is the most widely awaited rally I think I've ever seen. It arrived just on time, perfectly on schedule. Everyone knew it was coming so we'll see what happens with the real buying," he said.

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On Wednesday, the Joint House and Senate Committee holds a hearing to discuss oversight of the Troubled Asset Relief Program at 9:30 a.m. The House Financial Services subcommittee also holds a hearing on the Mortgage Reform and Predatory Lending Act.

SEC Chairman Mary Schapiro testifies before the House Appropriations Financial Services subcommittee on the SEC's role in the financial crisis.

A few companies report earnings, including American Eagle , National Semiconductor and Staples . EBay holds its analysts' day, and about 150 companies attend the Montgomery Tech Conference in Santa Monica, Calif.

Not that Chilly

Michael Darda, chief economist at MKM Partners, said there are some good signs in the credit markets. Investors have been worried about a chilling in credit markets and a pickup in Libor rates. Darda said even as the peak to trough fall in the S&P 500 is beyond the 1937 bear market, credit markets have not returned to the "Depression" levels of last fall. In a note, he pointed to a number of examples where spreads are better than they were in October, including the TED spread, two-year interest rate swap spread and the high yield spread between the 10-year junk bonds and the 10-year Treasury.

Scam of the Century

Bernard Madoff was charged Tuesday with multiple counts of fraud and money laundering. Prosecutors said there's no plea agreement between Madoff and the government. He was also charged with false statements, perjury, and theft and could face 150 years in prison if found guilty on all counts. Madoff's lawyer said his client is expected to plead guilty Thursday.

Madoff also faces fines of up to $170 billion, the prosecution's estimate of all the money Madoff got by stealing from clients, the investments he made with their dough, and the properties he bought.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.