Over the weekend, leading Democratic and Republican lawmakers expressed confidence that they could reach a deal to avert the "fiscal cliff", the series of automatic tax hikes and spending cuts that will start to take effect early next year.
Developments buoyed sentiment on Wall Street.
Of course sentiment could change on a dime. How can you tell is the market is about to break out – or break down again?
Strategy Session with the Fast Money traders
op trader Josh Brown, author of The Reformed Broker blog, believes the market is at a critical junction – and to gauge whether the rally has follow through, he's watching two areas of the market – small caps andemerging markets.
"How those two areas perform into the close will tell me whether there's more oomph left," he said.
If they stay strong, Brown thinks the advance will continue, However, "If they fade I'll lock in gains and walk away," he said.
Trader Joe Terranova, chief market strategist for Virtus, is more bullish.
He believes the move higher forces short sellers to cover. Also he likes the areas of the market that are leading the advance. "We're getting strong participation form energy andmaterials, " he said. That suggests the Street is more willing to embrace risk.
Adding to his bullish thesis, Terranova liked that the US dollar traded lower. All told, "I think the rally has more room to go."
Trader Stephanie Link, director of research at TheStreet, largely agrees with Terranova. "I think the week-end commentary is encouraging, " she said.
Link believes the best strategy is putting money to work right now in companies that have strong fundamentals.
Posted by CNBC's Lee Brodie
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CNBC.com with wires.