Analyst upgrades:

• Citigroup upgraded Adtran (NASDAQ: ADTN) to Buy from Hold on expectations the company will benefit from the broadband Stimulus funds.
• Morgan Stanley upgraded Continental Airlines (NYSE: CAL) to Overweight from Equal Weight based on relative valuation and views the company as a "survivor." Additionally, the analyst lowered 2009 industry estimates but believes it is the last cut for the year and is incrementally more positive on the sector.
• Morgan Stanley also upgraded EXFO Electro-Optical (NASDAQ: EXFO) to Overweight from Market Weight based on valuation.
• Tata Motors (NYSE: TTM) was upgraded to Buy from Hold at Deutsche Bank.
• Ascent Solar (NASDAQ: ASTI) was upgraded to Neutral from Underweight at JP Morgan.
• Mechel Steel (NYSE: MTL) was upgraded to Neutral from Underperform at Credit Suisse.

Continental Airlines (NYSE: CAL) is seeking immunity from antitrust laws to work more closely with United Airlines (NASDAQ: UAUA) and others on international routes. And, since airlines operate in a state of seemingly perpetual turmoil, what's the harm? According to the Justice Department: plenty.

The airline sought broad immunity as part of an effort to join Star Alliance, which includes US Airways, Lufthansa (OTC: DLAKY), and Air Canada -- along with United. Continental believes that it needs to join Star Alliance in order to remain competitive, especially with airlines that have this type of immunity already.

AMR Corp. (NYSE: AMR), the parent of American Airlines, reported earnings for the first quarter on Wednesday. Revenues decreased 15%, and on an adjusted basis, the company lost $1.30 per share. According to this source, the market was calling for a loss of $1.62 per share. Since management was able to beat by such a wide margin, Wall Street decided to reward the stock by bidding it up over 20% (that's how the shares were trading at the time I started this article).

Airlines are still having a problem with the economy. Consumers aren't traveling as much, businesses are cutting back on sending executives across country. Indeed, I'm sure the summer months are going to see a lot of vacation plans being eliminated as people decide to stay closer to home.

AMR Corp (NYSE: AMR) closed at $4.16. AMR is scheduled to report Q1 EPS on April 15. WTI Crude oil is recently up 2.51% to $50.62 according to Bloomberg. AMR April and May option implied volatility is at 133, August is at 128; near its 26-week average according to Track Data, suggesting non-directional price movement.

Delta Air Lines (NYSE: DAL) closed at $6.91. DAL is expected to report Q1 on April 21. DAL May option implied volatility is at 108; June is at 114; below its 26-week average of 122, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

According to the Associated Press, the International Air Transport Association (IATA) believes that world airlines will lose $4.7 billion this year. A loss of this size is more than world airlines saw following the September 11, 2001 terrorist attacks. The industry group attributes the losses to "the rapid deterioration of the global economic conditions."

This revision basically doubles the earlier forecast from December, causing the CEO of the IATA, Giovanni Bisignani, to note that "The state of the airline industry today is grim ... Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago." The IATA predicts revenues will drop by $62 billion to $467 billion, a 12% decline.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• American Express Co. (NYSE: AXP) earnings tumbled in Q4 but came in just short of expectations.
• Best Buy Inc. (NYSE: BBY) earnings prospects and cash flow led to an analyst's upgrade.
• Bristol-Myers Squibb Co. (NYSE: BMY) topped analysts Q4 expectations, sending shares higher.
• Colgate-Palmolive Co. (NYSE: CL) posted a better-than-expected Q4 profit despite the weak economy.
• Delta Air Lines Inc. (NYSE: DAL) reported a big quarterly loss due to merger costs and bad fuel hedges.
• Eaton Corp. (NYSE: ETN) Q4 earnings fell on lower exchange rates and charges related to an acquisition.
• E*Trade Financial Corp. (NASDAQ: ETFC) narrowed its Q4 net loss but fell short of expectations.

A consequence of a weakening airline sector is the pain it will cause plane-maker Boeing (NYSE: BA). With capacity tightening, the need for aircrafts is diminishing.

Imagine planes just sitting idle in the desert. That vision is becoming a reality.

Fortunately for investors, that vision will take time to play out. In the meantime, Boeing gets a free pass as they work through years of order backlog that built up during the last business cycle.

If you take a look at Boeing during the last few months, it is clear that investors have yet to catch on to a world of lower revenues going forward.

The airline industry is a mess and shares of the major airlines are to be avoided at all costs. With an economy that is ailing and fuel hedges gone awry, the sector is once again facing the prospect of steep losses.

Tuesday, we learned how bad it can get for the group. Delta Air Lines (NYSE: DAL) reported a quarterly loss of $1.4 billion, or a whopping $2.11 per share. The company blamed merger costs and bad fuel hedges for the big loss.

DuPont (NYSE: DD) reported Tuesday morning, saying it swung to a fourth-quarter loss. DuPont reported a loss of $629 million, or 70 cents per share, but excluding a restructuring charge the loss is 28 cents per share. Revenue fell 16% to $6.07 billion. Results were below analyst estimates of a loss of 24 cents per share on revenue of $6.17 billion.

Verizon Communications (NYSE: VZ) also reported Tuesday morning, saying it earned $1.24 billion, or 43 cents a share, in the fourth quarter. On an adjusted basis, Verizon earned 61 cents a share compared to 62 cents a share a year ago. Sales were $24.6 billion. Verizon missed estimates only slightly and shares gained 1.6% in premarket trading.

Yahoo (NASDAQ: YHOO) is reporting after the close today and analysts expect earnings of 13 cents a share for the period, on $1.4 billion in net revenue, according to FactSet Research. Shares indicated higher in premarket trading.

As an investor, I really despise the airline sector at the moment. These companies are notorious for being poorly run cash-losing machines.

Now, in the midst of a deep recession and too many airplanes flying too few customers, airline stocks can be expected to be poor performers in the short run and maybe longer.

I made the sector part of my Top 10 Stocks to Avoid in 2009. The main thesis, aside from the obvious recessionary issues, was that oil prices would resume their climb at some point in 2009.

Specifically, I suggested investors avoid Delta Airlines (NYSE: DAL) and United Airlines (NASDAQ: UAUA).

Higher oil prices directly impact the bottom line of the air carriers. The higher oil goes, the more difficult it is for the airlines to make a profit. This summer, with oil prices hitting $150 per barrel, the future of the group was in peril.

That said, the reality of higher prices caused the group to make some necessary changes that included mergers, reduced capacity and important surcharges. The operating environment had the potential to bring much needed discipline to the carriers.

Unfortunately, higher fuel prices did not last long enough to bring enduring change to the group. As prices fell, airline stocks rallied. It was looking good until the economy tanked.

With the recession, oil prices suddenly mattered less. Instead, the focus was on the consumer and business traveler cutting expenses during a contraction.

The airline sector loses if the economy rallies, as such a state brings higher oil prices and lower profit. If the economy stalls, the sector loses customers and revenues fall to unsustainable levels.

The point is that it is no-win situation for the group.

cIn the News:
The Biggest Insurance Scheme of All Time?
UnitedHealth Group, one of the country's largest insurers, settled what may be one of the largest health insurance schemes of all time on Tuesday after allegedly cheating sick patients out of hundreds of millions of dollars. And it probably would not have happened without Mary Jerome, an advanced-stage ovarian cancer patient who finally just said "enough" after getting hit with $46,000 in medical bills – even though she had top-notch insurance coverage.
http://www.cnbc.com/id/28643259

In the News:
Madoff Scheme Hits Home
For much of his life, the name Bernie Madoff has meant nothing journalist Robert Powell. Now, however, it means far more than it should in his household and countless others across America. In his household, the net effect of the Madoff scheme is that his wife has lost all the money in her 401(k) account and her job as well.
http://www.marketwatch.com/news/story/How-Madoff-cost-my-family/story.aspx?guid=%7B8B073FA4%2D2052%2D485A%2D86FF%2DD4905E250DB9%7D

The market sold off, but the activity was not broad and had little conviction. After days of gains, there was no surprise in it.

It ran like this:

DJIA: 8,669.11 (down 2.97%)

NASDAQ: 1,547.43 (down 1.55%)

S&P 500: 887.23 (down 2.47%)

General Motors Corp. (NYSE: GM) lost some ground on fears of a delay in the proposed $15 billion Congressional bailout plan. After this gained so much yesterday, much of this was in the news already.

Merck & Co. Inc. (NYSE: MRK) traded down after its annual pipeline review. The event included formal guidance out of the company on its drug pipeline for the next year and general commentary about how many drugs are in the pipeline for 2010 to 2012. Financial guidance did not seem to impress the market.

Delta may still be ready when you are, but in 2009 they're not going to be as big.

Citing the global recession, Delta (NYSE: DAL) announced that it will cut an additional 6-8% of capacity in 2009. The move will result in an up to 10% reduction in domestic capacity, when one includes the impact of previously-announced operational cuts. Delta also said it will eliminate an undetermined number of jobs.

Shares of Delta (NYSE: DAL) rose 52 cents to $8.48 on Tuesday at mid-day amid a broader market rally.

Delta, which recently merged with Northwest to become the world's largest airline, said it will offer "voluntary programs" to decrease the size of its workforce. Delta President Ed Bastian called the cuts "dramatic" and said total seat capacity, domestic and international, over the two-year, 2008-2009 period, will be reduced by 20% -- a required step, due to the downturn in both business and leisure travel, The Wall Street Journal reported.

Citigroup Inc. (NYSE: C) plans to sell its Japanese trust banking unit NikkoCiti Trust and Banking for about 40 billion yen ($416.7 million) as it struggles to survive the global financial crisis, according to the Nikkei. Also, a Citigroup fund, Citi Infrastructure Partners, is bidding 7.9 billion euros ($10.2 billion) to buy a Spanish highway operating firm, Sacyr Vallehermoso, the firms said on Monday. Citi shares were down over 12% by 11:30 am.

Yahoo! Inc. (NASDAQ: YHOO) and Microsoft Corp. (NASDAQ: MSFT) -- over the weekend there have been conflicting reports regarding the two. There were reports that Microsoft is going to offer $20 billion for Yahoo's search business, but then other sources said these are completely unfounded. Meanwhile, SAI posted that Sue Decker is the front runner for the CEO job at the portal company. YHOO and MSFT shares were down about 3.5% by 11:30 am.

General Motors Corp's (NYSE: GM) board met Sunday to review a restructuring plan intended to win support for up to $12 billion in emergency funding from the U.S. government, according to different reports. GM's plan includes cuts to executive pay andcould indicate that the company will ask some bond holders to accept equity and a limited cash payout to redeem the debt they hold and focus on fuel-saving technology. GM shares were down about 9% at 9 am.

[Update 8:50 am: Johnson & Johnson (NYSE: JNJ) has agreed to buy breast-implant maker Mentor Corp. (NYSE: MNT) for $1.07 billion, or $31 per Mentor share, a 92% premium to Friday's closing price. The deal, expected to close in the first quarter of 2009, is expected to have a dilutive impact to Johnson & Johnson's 2009 earnings per share of approximately $0.03 - $0.05. Of course, MNT shares are up over 88% in premarket trading. JNJ shares were down about 2.7%, but MNT's up about 90% by 11:30 am.]