After strong retail earnings and a pick-up in merger activity, stocks rallied Tuesday, but will it last?

The numbers say we're fine, said Guy Adami, managing director at Drakon Capital. But just as the numbers are good, they could be equally as bad and we could go down 20 handles, he said.

In the broad market, the leverage is currently in fixed income, said Joe Terranova, chief market strategist at Vitrus Investment Partners. There is a momentum shift, however, which started Monday in the technology sector. Tech tends to lead the market, he said, so there is further upside to come.

Potash , the world's largest fertilizer producer, rejected a $39 billion takeover bid from BHP Billiton Tuesday. That M&A activity helped stocks rally Tuesday, but these are one-off deals, said Gary Kaminsky, a CNBC contributing editor and former Neuberger Berman money manager. They are strategic and aren't going to create follow-up deals or spark other offers, he said. In order for the overall market to go higher, we'll have to see a stronger source of M&A.

But M&A activity does give investors confidence, said Karen Finerman, president and co-founder of Metropolitan Capital Advisors. We also don't know how many bidders there are out there, she argued. Kaminsky thinks there is just one potential buyer of POT, but Finerman said there could be potential buyers from around the world.

Tim Seymour of EmergingMoney.com also thinks there are many potential buyers and said it's likely mining compnaies will ultimately absorb ag companies, so he's looking to Rio Tinto . Seymour thinks the POT deal is going to be aggressive, so he would short BHPbecause "they are going to chase it." If he had to guess which company might get acquired next, he said Mosaic .

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TOPPING THE TAPE: RETAILERS RAISE FORECASTS, RALLY

Retail names pushed higher Tuesday after Walmart and Home Depot offered optimistc forecasts. Even so, becareful of retail names, said Patty Edwards, principal at Storehouse Partners.

During its conference call, Walmart executives said customers are spending less, not using credit cards because they don't have them and are seeing more food stamps, Edwards noted.

Abercrombie & Fitch is discounting product by 15% when a year-and-a-half ago, executives said they wouldn't discount merchandise because it didn't believe in it or have to, Edwards reports. The teen retailer is also closing 60 stores, so she thinks something has changed. Edwards thinks one could short the company, but said the valuation is too high for her comfort level and she's not seeing the trends change.

Karen Finerman, president and co-founder of Metropolitan Capital Advisors, is looking at the TJX Companies , which operates the TJ Maxx retail chain. The company's gross margins improved and increased guidance, she said. It tends to be a conservative company, so she likes what's she's seeing at current levels.

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SPECULATION MOVES SHARES OF SMARTPHONE RIVALS

Speculation drove much of the action in smartphone rivals Apple and Research In Motion Tuesday.

Apple's stock jumped after a Taiwanese newspaper reported that a smaller iPad was on the way. Shares of RIM fell following confusion over a price cut in its Torch device, which is now being sold for $99 on Amazon.com. Last week, it was being sold for $199. RIM told CNBC's Melissa Lee that Amazon reduced the price on its own.

RIMM is the real story to look at, said Joe Terranova, chief market strategist at Vitrus Investment Partners. This is a $27 billion company, so you have downside protection here. Any time the stock gets down to $45-50 a share, he recommends buying it. He thinks the company is valuable, so when it gets that low, someone is going to come in and buy the company one of these times.

If Microsoft wanted to do something to shake up their company, they would buy RIMM, said Gary Kaminsky, a CNBC contributing editor and former Neuberger Berman money manager.

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Trader disclosures for Tuesday, Aug. 17, 2010:

Joe Terranova
Terranova owns (AKAM)
Terranova owns (V)
Terranova owns (NRG)
Terranova owns (POT)
Terranova owns (OXY)
Terranova owns (GLD)
Terranova owns (BAX)
Terranova owns (MOS)
Terranova owns (PFE)
Terranova owns (SU)
Terranova owns (XBI)
Terranova owns (GOOG)
Terranova owns (LRCX)
Terranova owns (AXP)
Terranova owns (C)
Terranova owns (GS)
Terranova owns (BMO)
Terranova owns (MSFT)
Terranova owns (QCOM)
Terranova owns (FCX)
Terranova owns (APA)
Terranova owns (GLD) Calls
Terranova is chief market strategist of Virtus Investment Partners, LTD.

Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)

Guy Adami
Adami owns (AGU)
Adami owns (BTU)
Adami owns (NUE)
Adami owns (C)
Adami owns (GS)
Adami owns (INTC)
Adami owns (MSFT)
Adami’s wife works at Merck

Karen Finerman
Finerman’s firm owns (AAPL)
Finerman’s firm is short (ANF)
Finerman’s firm owns (ARG) calls
Finerman’s firm owns (BBY)
Finerman’s firm owns (GENZ) options
Finerman owns (GOOG)
Finerman’s firm owns (JCG)
Finerman and Finerman’s firm owns (JPM)
Finerman’s firm owns (RIMM)
Finerman’s firm owns (TJX)
Finerman’s firm owns (WMT)
Finerman's firm is short (IJR)
Finerman's firm is short (MDY)
Finerman's firm is short (SPY)
Finerman's firm is short (IWM)
Finerman’s firm owns S&P 500 puts
Finerman’s firm owns Russell 2000 puts

Gary Kaminsky
***No Disclosures***

Patty Edwards
Edwards owns (AMZN) for clients
Edwards owns (C) for clients
Edwards owns (CSCO) for clients
Edwards owns (F) for clients
Edwards owns (GE) for clients
Edwards owns (GLD) for clients
Edwards owns (GOOG) for clients
Edwards owns (HD) for clients
Edwards owns (JCG) for clients
Edwards owns (MSFT) for clients
Edwards owns (PFE) for clients
Edwards owns (TTM) for clients
Edwards owns (WMT) for clients
Edwards owns (YHOO) for clients
Edwards owns (TM)

Tim Seymour
Seymour owns (POT)

Barry Ritholtz
Funds managed by Ritholtz own (PCS)
Funds managed by Ritholtz own (QID)
Funds managed by Ritholtz own (TLAB)
Funds managed by Ritholtz own (SBGI)

Anthony Scaramucci
Scaramucci and SkyBridge Capital are long (MSFT)

Colin Gillis
***No Disclosures***

Stephen Weiss
***No Disclosures***

Scott Nations
***No Disclosures***