The markets shrugged off some bad news and bounced back Tuesday.

The Dow Jones Industrial Average gained 127.83, or 1.63%, to 7,969.56, while the S&P 500 rose 17.69, or 2.13%, to 850.08. The Nasdaq jumped 35.64, or 2.22%, to 1,643.85.

Melissa Lee, the moderator of CNBC's "Fast Money" TV show, said investors shooked off some bad earnings and refused to roll over during the trading session.

Lee said shares of Yahoo! ( YHOO) started to roll over in after-hours trading as soon as its CEO Carol Bartz talked about dark clouds in its outlook.

Guy Adami said Yahoo! managed an earnings beat because it "tripped over a bar that was on the freaking ground."

Jim Goldman, who listened in on the conference call, said Bartz said the company's top priority is to create "kick-ass" experiences for its users. Bartz also said the company is well-positioned for an increase in ad spending when the economy turns around, he said.

Goldman said Yahoo! still has a long way to go to excite investors on a fundamental basis. He said the stock currently rises on talk of job cutbacks and prospects of a Microsoft ( MSFT) partnership.

Lee shifted the discussion to the bank stocks, which rebounded after some bad news. Tim Seymour said the rebound came off of Treasury Secretary Tim Geithner's comments that most banks have enough capital.

Adami liked the 20% move by US Bancorp ( USB) which beat expectations despite a 61% decline in first-quarter profit.

Finerman believes a situation is setting up in which some big banks are going to see their TARP money converted to common, a scenario, she said, would lead to a selloff in bank stocks.

Lee noted that Capital One Financial ( COF) was falling in after-hours trading. Finerman said the question for Capital One is delinquencies, which she described as "losses in the pipeline waiting to happen."

Finerman said she would buy American Express ( AXP) because the securitization market, which it relies on for funding, is improving.

Lee brought in Gerard Cassidy, analyst for RBC Capital Markets, to talk about the run-up in bank stocks despite "rough earnings."

Cassidy said investors are long despite the difficulties banks are having with credit losses. He said there will be a real sell-off in bank stocks if the economy continues to lose 500,000 to 600,000 jobs a month into August.

He said the health of the bank stocks hinges on the ability of the government to take steps to prevent the economy from falling further.

Lee shifted the panel's attention to technology stocks. Adami like Honeywell ( HON), saying it's like investing in General Electric ( GE) without the troublesome finance unit.

Adami still rates IBM ( IBM) a buy despite today's profit taking.

Shifting to oil, Seymour said he's a buyer of Halliburton ( HAL). He said the company beat expectations and cited a Morgan Stanley report that sees a trough in the rig count. "This is one part of the sector you can continue to ride," he said.

Finerman said she liked Transocean ( RIG), which has rebounded strongly this year, with big contracts and huge cash flow in front of them.

In the defense stocks, Lee noted that Lockheed Martin ( LMT) was up after it raised its guidance.

Adami said Lockheed and other defense stocks remain safe bets. "Mother Teresa could be defense secretary and defense spending would still go up."

Moving on to the trades for Wednesday, Lee asked Toni Sacconaghi, an analyst with Sanford Bernstein, to comment on the prospects for Apple ( AAPL).

Saccognaghi expects an "OK" quarter with better-than-expected earnings results and in-line results for Macs, iPhones and iPods. He said he doesn't think there are strong enough catalysts in the quarter to lift the stock.

In Trade No. 2, the panel was split on Yum! Brands ( YUM) and McDonald's ( MCD).

Macke didn't think much of either stock, while the rest of the panel liked Yum's growth story in China.

For Trade No. 3, Finerman talked about how the market penalizes companies with bad balance sheets. She was especially critical of a deal that Ingersoll-Rand ( IR) made recently, saying it was a poor use of capital structure.

On the other hand, she praised companies like Pfizer ( PFE), Oracle ( ORCL) and Roche ( ROG.VX) for making good use of their balance sheets for acquisitions.

Scott Redler, chief strategic officer for T23live.com, said the bears have an opportunity to sink their teeth into the S&P 500. He sees a retracement to 790, where, if it holds, could lead to a nice end-of-the-year rally to 940 and 980.

In the stem cell space, Jon Najarian told the panel two stocks he liked: Alexion Pharma ( ALXN), principally for its cancer treatment business, and Medarex ( MEDX), which has Amgen ( AMGN) as a big partner.

He said likes stem-cell companies which have partners that can be owners some day.

In the final trades, Macke said to "take a bite" into Apple into earnings. Adami said to "take out a whip" on IBM. Finerman was for Emulex ( ELX), while Seymour said to short Freeport McMoRan ( FCX)

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