Since the market ditched its typical Monday mania yesterday, maybe we can escape the inevitable depression that has followed in its wake.

For five consecutive weeks, the market has started with an up-day only to tank for the rest of the week. Some have blamed the Monday upsurge on weekend manipulation of the futures market. If that’s the case, it didn’t work. Overall, the S&P 500 has fallen from a high of 1150 on 1/19 to a low last week of 1044, losing approximately -9% from its high five weeks ago.

So far, 6 home builders have reported their Q4 earnings: DHI, BZH, SPF, MHO, MDC, and NVR. By now, it should be clear that the builders have made progress digging themselves out of the 2007 through 2009 housing ditch. For the most part they increased orders, sold homes, and slowed cancellation rates. This quarter, they were profitable albeit in large part due to favorable tax benefits.

The builders' made headway improving their balance sheets:

If institutional investors thought of leverage as a bouquet of daisies, they'd be playing "(S)he loves me, (S)he loves me not" and hoping to still be respected in the morning. Now that the worst economic recession of modern times might be abating somewhat, more than a few buy side executives are looking for a sweetheart to help them replenish diminished portfolio values. Let's just hope that the love affair is not fickle, causing more hurt than help.

In "Wall Street's New Flight to Risk" (February 15, 2010), Bloomberg BusinessWeek reporters Shanon D. Harrington, Pierre Paulden and Jody Shenn write that investors are on the prowl for yield. With over $150 billion allocated to U.S. bond funds, returns are low and the only way to add some excitement is with exotics such as "payment-in-kind" bonds that encourage the issuance of more debt than a borrower's operating cash flow would ordinarily support. Derivatives are another Valentine, with banks "again pushing" collateralized debt obligations ("CDO"s) that can increase in value (depending on the trade) as defaults increase.

The U.S. Dollar is Finally Getting Invited Back to the Investment Party

The buck is up 6% against the euro in the last three weeks. Notwithstanding problems in Greece and Spain, and the attendant complications for the E.U., this is a pretty good performance.

On Tuesday the euro was on the rise after it was revealed that ECB President Trichet was going to leave a central bank meeting in Sydney. His premature departure created a significant amount of speculation that a Thursday EU summit in Brussels had been called to present a bailout for Greece and other struggling Eurozone nations. The significant number of latecomers to the euro-bashers ball was in part forced to move rapidly to the sidelines and so illustrated the vulnerable state the market finds itself in. The euro added a cent in a very short time frame as a result of today’s story, which turns out to be true in content but lacking in rationale.

Media reports: Greece! It’s falling! It’s terrible! It’s bankrupt! It may collapse the Euro! It could tear the European Union asunder! Can the US withstand this coming catastrophe?

Meanwhile, back at The Wall Street Journal on the front page of the Money & Investing section: “Is Greek Tragedy Too Much Drama?” (February 8, 2010; page C-1) The lead paragraph reads:

• UBS is profitable but still bleeding clients. UBS (UBS) reported its first profit in more than a year, earning 1.2B Swiss francs ($1.1B) in Q4 thanks to lower debt-related costs, a tax credit and gains at the investment bank. However, UBS said withdrawals by wealthy clients are accelerating, rising to 45.2B francs from 26.6B francs in the previous quarter, and far exceeding analysts' estimates of 17.5B francs in outflows. CEO Oswald Gruebel expects outflows to continue "in the immediate future." Shares +1.8% premarket (7:00 ET).
• Continued recalls test Toyota. As expected, Toyota (TM) will recall 437,000 hybrid cars globally to correct faulty braking systems. President Akio Toyoda apologized again to consumers in a Washington Post op-ed and promised to work "to restore trust in our word and in our products," but consumer confidence will be hard to regain and Toyota has lost around $31B in market value since the recalls began on Jan. 21. In more bad news for the firm, a congressional hearing is set for Wednesday to investigate whether Toyota and federal regulators have fully grasped what caused the brake problems. Shares +3% premarket (7:00 ET).
• Exxon feels less than jubilant. Ghana has blocked the sale of a $4B stake in its Jubilee oil field, ending months of talks with potential buyer Exxon Mobil (XOM). A Ghanaian official said state-run Ghana National Petroleum Corp would be the only entity allowed to buy the stake. This is Exxon's second recent setback in Africa, after plans to buy a stake in a major Uganda field also fell through. Shares +0.8% premarket (7:00 ET).
• American Airlines faces major safety fine. American Airlines (AMR) may face a civil penalty of $10M-20M for serious maintenance lapses. This would represent the largest penalty the Federal Aviation Administration has ever levied against a company. Separately, the Department of Transportation is preparing to release a report that outlines American Airlines' apparent failures to identify and promptly resolve aircraft-maintenance problems in 2008.
• JAL jilts Delta. Confirming yesterday's local media reports, Japan Airlines says it has decided to stick with American Airlines (AMR) and its Oneworld alliance, and will end talks with Delta (DAL). Without directly addressing JAL's decision, Delta issued a statement that it remains a big player in Asia. American Airlines said JAL had made the right choice and that the two companies "will now focus on building a joint venture that can offer JAL significant revenue growth beyond the stability that Oneworld offers today."
• Massive short of the euro. Traders and hedge funds have bet nearly $8B against the euro in the largest ever short position of the currency. Concerned about a eurozone debt crisis, traders have built up more than 40,000 contracts against the euro.
• Trichet travel change prompts bailout speculation. European Central Bank President Jean-Claude Trichet sparked rumors of an imminent Greece bailout when he abruptly left a summit in Sydney today, a day earlier than planned. An ECB spokesman said the travel change was purely due to logistics "because there was some concern that he would not catch a connecting flight and therefore miss the EU summit" this Thursday. Speculation of a Greek bailout helped lift the euro 0.4% against the dollar (7:00 ET).
• Rakoff to rule on BofA. Judge Jed Rakoff promised to rule by the end of next week on Bank of America's (BAC) proposed $150M settlement with the SEC. He wants to hear from lawyers on both sides first, and has made clear that the deal will require some changes, including possibly allowing the court to oversee important issues at the bank such as compensation. Rakoff also questioned whether the revised settlement still unfairly punishes shareholders. Shares +0.8% premarket (7:00 ET).
• AgFeed to sell 20% of unit in IPO. Chinese hog producer AgFeed Industries (FEED) announced it plans to sell up to 20% of its animal nutrients feed subsidiary through an IPO in order to raise $20M-25M. The move is meant to "enhance the ability of our animal nutrition business to pursue strategic initiatives and growth, upgrade personnel, foster innovation and raise capital."
• Boeing going ahead with its largest plane. Boeing (BA) successfully completed a test flight of its 747-8 freighter yesterday, the largest plane the company has ever built. The test happened a year later than originally planned, and delays in producing the new freighter prompted Boeing to say late last year that it's recording a $1B charge. The company now expects assembly to begin in mid-2010, with the first delivery in Q4 2011.
• Opel offers up restructuring plan. General Motors' Opel unit outlined a restructuring plan this morning that asks for €2.7B ($3.7B) in loans and loan guarantees from European governments. Opel plans to invest a total of €11B through 2014 and will cut around 8,300 jobs across Europe.
• Report on Lehman collapse coming soon. The court-appointed examiner looking into the collapse of Lehman Brothers said he has completed his 2,200-page report on the matter and it will be made public as soon as possible. The examiner was asked to investigate Lehman's collapse, its sale of key assets to Barclays (BCS) and whether there were any signs of fraud, dishonesty or misconduct.
• Xstrata sees value in Glencore merger. Xstrata (XSRAF.PK) has acknowledged that a merger with privately held commodities trader Glencore could create value. Glencore owns 34% of Xstrata and the prospect of a merger has risen in recent months as Glencore tapped capital markets and Xstrata pursued deals to gain scale. Separately, Xstrata reported a 60% drop in annual profits yesterday, but said it will resume its dividend payments after a 19-month hiatus.
• Areva gets aggressive on solar energy. Areva (ARVCF.PK), the world's largest nuclear plant builder, says it's diversifying into solar energy with the intent of becoming a world leader in the sector by 2012. The company is starting with a purchase of U.S.-based solar thermal player Ausra. Terms of the acquisition were not disclosed.
• Job growth on the horizon. Conference Board's Employment Trends Index rose 1% in January to 93.2 vs. 91.8 in December. "The continued rise in the ETI makes us more optimistic that job growth will resume in the first quarter of 2010," said researcher Gad Levanon. "The improvement is widespread across all eight components," and the "large decline in the number of involuntary part-time workers was the first time this component showed a strong signal of improvement."

Earnings: Tuesday Before Open

• Cognizant Technology Solutions (CTSH): Q4 EPS of $0.47 beats by $0.01. Revenue of $903M (+20%) vs. $888M. Shares +2.4% premarket. (PR)
• Coventry Health Care (CVH): Q4 EPS of $0.74 beats by $0.18. Revenue of $3.42B (+15%) vs. $3.48B. Shares +2.5% premarket. (PR)
• NYSE Euronext (NYX): Q4 EPS of $0.58 beats by $0.10. Revenue of $640M (-6.3%) vs. $638M. Shares +1.3% premarket. (PR)

Earnings: Monday After Close

• Apollo Investment (AINV): FQ3 EPS of $0.48 beats by $0.17. Total investment income of $85.6M. Shares +0.8% AH. (PR)
• Atmel (ATML): Q4 EPS of $0.04 beats by $0.04. Revenue of $343M (+2.7%) vs. $318M. Shares -0.4% AH. (PR, earnings call transcript)
• Axis Capital (AXS): Q4 EPS of $1.87 beats by $0.56. Revenue of $868M (+50%) vs. $341M. Shares +1.4% AH. (PR)
• Camden Property Trust (CPT): Q4 FFO of $0.71 beats by $0.08, after excluding a $1.24/share impact from impairment losses. Revenue of $153M (-3%) vs. $132M. Shares -1.5% AH. (PR)
• Chimera Investment Corp. (CIM): Q4 EPS of $0.12 misses by $0.02. Revenue of $101M (+325%). Shares +0.3% AH. (PR)
• Electronic Arts (ERTS): FQ3 EPS of $0.33 beats by $0.02. Revenue of $1.35B (-23%) in-line. Sees Q4 EPS of $0.02-0.06 vs. $0.13, on sales of $800M-850M vs. $851M. Sees fiscal 2011 EPS of $0.50-0.70 vs. $0.74. Shares -8.2% AH. (PR, earnings call transcript)
• Hartford Financial (HIG): Q4 core EPS of $1.51 beats by $0.11. Expects 2010 core EPS of $3.70-4.00 vs. $3.96. Shares -4% AH.(PR)
• Lincoln National (LNC): Q4 EPS of $0.90 beats by $0.07. Revenue of $2.4B (+12%) vs. $2.5B. Shares -2.8% AH. (PR)
• Nuance Communications (NUAN): FQ1 EPS of $0.29 beats by $0.02. Revenue of $285M (+16%) vs. $269M. Shares -0.1% AH. (PR, earnings call transcript)
• Pharmaceutical Product Development (PPDI): Q4 EPS of $0.16 misses by $0.07. Revenue of $357M (-2%) vs. $314M. Shares +0.5% AH. (PR)
• Principal Financial Group (PFG): Q4 EPS of $0.62 misses by $0.03. Revenue of $2.4B (-6%) vs. $2.5B. Shares -1.9% AH. (PR)
• Qiagen (QGEN): Q4 EPS of $0.24 beats by $0.02. Revenue of $289M (+21.9%) vs $237M. Shares -2.0% AH. (PR)
• Teck Resources (TCK): Q4 EPS of C$0.70 beats by C$0.18. Revenue of C$2.2B (+37.5%). (PR)
• Tw Telecom (TWTC): Q4 EPS of $0.07 beats by $0.02. Revenue of $308M (+5%) in-line. (PR, earnings call transcript)
• Veeco Instruments (VECO): Q4 EPS of $0.41 beats by $0.07. Revenue of $146M (+32.7%) vs. $110M. Shares -2.4% AH. (PR, earnings call transcript)
• W.R. Berkley (WRB): Q4 EPS of $0.81 includes gains from investments of $0.10/share and may not be comparable to estimate of $0.67. Revenue of $1.18B (+9%) vs. $1.15B. (PR)

Today's Markets

• In Asia, Nikkei -0.2% to 9933. Hang Seng +1.2% to 19790. Shanghai +0.5% to 2949. BSE +0.7% to 16042.
• In Europe at midday, London +0.2% to 5100. Paris -0.3% to 3595. Frankfurt -0.1% to 5479.
• Futures: Dow +0.4%. S&P +0.6%. Nasdaq +0.7%. Crude +0.3% to $72.09. Gold +0.1% to $1,067.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook Chain Store Sales
  10:00 Wholesale Trade
  1:00 PM 3-Yr Note Auction
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: AGCO, AGU, ANR, BIIB, BJS, CAM, CE, CTSH, CVH, IACI, KO, NYX, PHM, TAP, TIN, VSH
• Notable earnings after Tuesday's close: BIDU, CERN, CFN, CXW, DIS, EOG, UDR, XL

Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.

Stocks discussed on the in depth session of Jim Cramer's Mad Money TV Program, Monday February 8.

Intel (INTC), Xilinx (XLNX), Marvell Technology Group (MRVL), Cypress Semiconductor (CY), Broadcom (BRCM), Avnet (AVT), Altera (ALTR), Texas Instruments (TXN), Cisco Systems (CSCO)

With 2010 getting off to an even worse start than 2009 at this point in the year, it should come as little surprise that the current decline has been the sharpest since the S&P 500 bottomed in March 2009. One indicator we monitor on a daily basis and update each day in our Morning Lineup is the percentage of S&P 500 stocks that are oversold and overbought (stocks that are more than one standard deviation above or below their 50-day moving average). Currently, 305 stocks (61%) in the S&P 500 are oversold, while only 25 are overbought. As shown in the chart below, the percentage of oversold stocks in the S&P 500 (green line) is higher than it has been at any other time since the S&P 500 bounced off the lows in March 2009.

click to enlarge

Last week the New York Times ran a story that, in the print version, was headlined “Bipartisan Financial Reform Talks Crumble in the Senate." My first thought upon reading this headline was to wonder if I still had any of those crumbly shortbread cookies I bought last week. (Sadly, not.)

My second thought was that maybe, rather than waiting around for Congress to pass sensible, comprehensive financial reform – which will presumably happen right after Hell’s residents start ordering parkas from L.L. Bean, the moon waxes turquoise, and the Saints win the Super Bowl (hey, one down!) - we should table all attempts to fix the crap that got us into this crisis, and instead just try to fix the crap this crisis has gotten us into.

The Securities and Exchange Commission (SEC) is cracking down on the mutual fund and ETF industry. The target of its ire: 12(b)-1 fees.

SEC Chairman Mary Schapiro says that the SEC will begin to move on the issue of 12(b)-1 fees collected by brokers this year, reports Sara Hansard for InvestmentNews.

European and U.S. stock markets have taken a hit recently, as spooked investors from Shanghai to Sao Paolo were fleeing risky assets. This flight took place amid concern that the financial crisis in Portugal and Greece could spread through the eurozone, with vast implications for the fate of the fragile global economic recovery. (Fig. 1)

Liquidate & Buy Dollar

Last week, Len Burman published a provocative op-ed suggesting that President’s Obama's idea of freezing non-security discretionary spending amounts to “chump change”. Burman said that if he wants to make real budget improvements, the President should propose to freeze tax expenditures (i.e., all the various preferences in our famously complex tax code). By Len’s calculations, such a freeze would increase tax revenues by $3.5 trillion over the budget window, 14 times as much as the $250 billion in spending reductions from the narrow spending freeze.

Over at the National Journal, John Maggs interviewed Len about his proposal and then asked various experts for their reactions. Here’s what I wrote:

Here's an update to a chart I've shown several times in the past. I note the huge rebound in the prices of used cars following the recession-induced collapse of late 2008.

As Manheim notes,

The market is grappling for direction but has climbed off the canvass in part to very solid earnings from the likes of Hasbro (HAS) and Consumer Value Stores (CVS), and an upgrade of Home Depot (HD) over at Morgan Stanley. There seems to be a natural inclination at this point for the market to move lower as it seeks out buyers that have become more reluctant to buy the dips. On that note, however, buyers have begun to sniff around tech and commodities over the last week or so. There was big money made in those areas last year and recent pullbacks must conjure up great memories.

I like the action in the market; it has to get cheap and has to shake out non-believers to establish the base for a move higher. On that note, Chinese stocks look and act great. I think that bubble story is overdone; although I will say there is a real estate situation there that has to be addressed, I don't think it's the linchpin to the country's overall economic success. Let's see if there is a late move that might spark some panic buying, which we got a glimpse of late Friday afternoon. Of course it's tough getting overall traction without the financials, but speculation about the next attack on the industry seems to have cast yet another dark shadow.

Lynn Reaser, is chief economist at Point Loma Nazarene University in San Diego and president of the National Association for Business Economics. Previously she was Chief Economist of Bank of America’s Investment Strategies Group.

Foreign Issues Make it Hard to Fathom Where the US Market is Headed

The dominant factor in the market at the moment seems to be the budget and debt problems of a handful of European countries. It has become hard to discern what current market thinking is relative to our myriad of domestic issues. Even though it has been peak reporting time for earnings and those reports in general have been reasonably good, the market seems to still be searching for direction. It is still not clear if the recent pull back in the market is the start of a substantive market correction. Particularly in times like this, when the market itself is providing little direction to investors, sell-side sentiment can be useful in providing help in which industries make the most sense. There are some pronounced sell-side sentiment trends to the upside in two industries and to the downside in two.

Stocks discussed on the lightning round session of Jim Cramer's Mad Money TV Program, Monday, February 8.

Bullish Calls:

Nike (NKE): "I think that Nike is very cheap, I do not have visibility into the quarter… I do think that Nike can be bought on a scale down…. remember, this is not a good market… but Nike is a high quality name… there was a very good report that Goldman Sachs put out recently which said a lot of good things about Nike… I think that Goldman is right and Nike is right."

The $1 trillion expansion of the Federal Reserve's Balance Sheet that occurred from Sept. '08 through late last year is arguably one of the biggest monetary events to happen in the history of the U.S. This chart puts it into perspective (note that the y-axis is a logarithmic scale). Prior to this crisis, bank reserves totaled about $96 billion and hadn't grown at all since 2003; now they stand at $1,190 billion.

I like to keep big and complex things as simple as possible in order to better understand their significance, so I offer this simple description of what has happened and what it might mean. It's not meant to be a definitive analysis of the situation, but rather something that should be understandable to those with a minimal level of knowledge of monetary matters. And at the very least it provides a basis for discussion.