Southwest Airlines (LUV) canceled 300 flights on Sunday, to inspect 79 Boeing (BA) 737-300 planes to address possible "skin fatigue". Overall option implied volatility of 29 is below its 26-week average of 32 according to Track Data, suggesting decreasing price movement.

KB Home (KBH) April put option implied volatility is at 52, May is at 45; compared to its 26-week average of 46 according to Track Data, suggesting larger near term price movement into its expected release of Q1 results on April 5.

Update is by Stock Specialist Paul Foster of theflyonthewall.com

Stocks were again higher throughout most of the trading day, yet the final closing bell "red or black" levels were not certain until literally the last few minutes of the day. Fed Treasury buying and anticipation of a Ben Bernanke speech kept the lid on Treasury yields as well. Chips remained weak today and some airline scares did not exactly serve as a great catalyst to drive all transports. What is often "Merger Monday" felt more like "Mixed Monday" today.

Here were the unofficial closing bell levels:

Dow Jones: 12,400.03 +23.31 (0.19%)

S&P500: 1,332.87 +0.46 (0.03%)

Nasdaq: 2,789.19 -0.41 (-0.01%)

Top Analyst Upgrades/Downgrades

Southwest Airlines (LUV) is the largest airline in the United States, based on domestic passengers carried. Southwest Airlines operates more than 3,100 flights a day, as of December 31, 2010, utilizing a fleet of 548 Boeing 737 aircraft. Southwest Airlines currently serves 71 cities in 36 states. It also provides freight services with in the United States, and the company competes with American Airlines (AMR), Delta Airlines (DAL), and U.S. Airways (LCC). In September 2010, Southwest announced plans to acquire AirTran Airways (AAI), which is expected to close in Q2 2011.

Launch of Coverage on Southwest Airlines; $14.05 Price Estimate

We've broken down our analysis of Southwest Airlines into two main business segments:

Fortune has released its list of the world's 50 most respected companies and once again Apple Inc. (AAPL) tops the list.

This is the fourth year in a row that the Cupertino based company has grabbed the top slot. Apple's respect comes mainly due to the company's ability to release new products at an amazingly quick pace, often updating its main product lines at least once a year.

Southwest Airline Co. (LUV) overall option implied volatility of 32 is below its 26-week average of 34 into Q2 earnings per share (EPS) on January 20, suggesting slightly less price movement.

Microsoft Corporation (MSFT) overall option implied volatility of 23 is below its 26-week average of 28 into Q2 EPS on January 27, suggesting decreasing price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com.

Southwest Airlines (LUV) is hosting an analyst meeting on December 16. Overall option implied volatility of 31 is below its 26-week average of 35, according to Track Data, suggesting decreasing price movement.

Discover Financial Services (DFS) is scheduled to report Q4 EPS on December 16. Overall option implied volatility of 37 is near its 26-week average, according to Track Data, suggesting nondirectional price movement.

Options Update is by Stock Specialist Paul Foster of theflyonthewall.com

Analyst Upgrades

• Goldman upgraded Citigroup (C) to conviction buy from buy, Principal Financial (PFG) to buy from neutral, and Stancorp Financial (SFG) and Hartford Financial (HIG) to neutral from sell.
• JetBlue (JBLU) was upgraded to overweight from neutral at JPMorgan.
• Barclays upgraded Royal Caribbean (RCL) and Carnival (CCL) upgraded to overweight from equal weight.
• Hollysys Automation (HOLI) was upgraded to buy from hold at Roth Capital.
• RBC Capital upgraded Alliance Data Systems (ADS) to outperform from sector perform.
• RRI Energy (RRI) was upgraded to buy from hold at Citigroup.

The earnings crunch is back on this week. Third quarter reports are due from tech, financial and pharmaceutical companies, from airlines and from many others. Here's a day-by-day rundown of the coming week's earnings highlights, with a closer look at Apple (AAPL), Harley-Davidson (HOG), Boeing (BA) and Southwest Airlines (LUV).

Getting things started on Monday, analysts surveyed by Thomson Reuters expect Citigroup (C), Halliburton (HAL) and IBM (IBM) to post year-over-year earnings growth. But Monday's highlight no doubt will be Apple's (AAPL) quarterly results.

Analyst Upgrades

• KeyBanc upgraded Las Vegas Sands (LVS) to hold from underweight based on Singapore performance and a potential revaluation of the yuan.
• ThinkEquity upgraded Seattle Genetics (SGEN) to buy from hold based on the positive SGN-35 HL data. The firm raised its price target to $16 from $12.
• Merriman upgraded Applied Signal (APSG) to buy from neutral with a $28 to $31 valuation range, citing greater confidence in earnings estimates and the company's recent contract wins.
• Siliconware Precision (SPIL) was upgraded to neutral from underperform at Macquarie.
• Pulte Group (PHM) was upgraded to neutral from sell at Goldman.
• Greenbrier (GBX) was upgraded to outperform from market perform at Morgan Keegan.

More Monday merger fun, this time from the airline sector. Reportedly, Southwest Airlines (LUV) announced that it will purchase AirTran Airlines for roughly $1.42 billion.

This move will be funded mainly with debt, and it will help Southwest establish a larger presence in cities like Boston and New York. What's more (as the article points out), Southwest will now be in "head-to-head competition with Delta Air Lines in Delta's home base of Atlanta."

The earnings crunch rolls on this coming week, and the analysts surveyed by Thomson Reuters are looking for strong quarterly results from the likes of Avon (AVP), Coinstar (CSTR), Corning (GLW), DuPont (DD), MetLife (MET), Norfolk Southern (NSC), Northrop Grumman (NOC), Royal Dutch Shell (RDS.A) and many others. In fact, Broadcom (BRCM), Chevron (CVX) and Southwest Airlines (LUV) are expected to have doubled their second-quarter earnings per share compared to a year ago.

The three months that ended in June saw Southwest Airlines celebrate the 39th anniversary of its founding, and it also declared a quarterly dividend. Analysts expect the Dallas-based no-frills carrier to report that second-quarter earnings came to 27 cents a share, a 70.4% rise from a year earlier. Revenue for the period is expected to have grown 20.4% to $3.2 billion. So far, analysts predict similar earnings and revenue numbers for the third quarter. But earnings results were better than expected in the past four quarters, beating consensus estimates by as much as 47%.

Analyst Upgrades

• Keefe Bruyette upgraded East West Bancorp (EWBC) to outperform from market perform after the company acquired assets from Washington First International Bank. The firm has a $21 price target for shares.
• Piper Jaffray upgraded Amylin (AMLN) to overweight from neutral, citing valuation and Bydureon's profile. The firm maintains a $26 price target for shares.
• Soleil upgraded MGM Mirage (MGM) to hold from sell, citing signs of stabilization in Vegas and valuation. The firm upped its target for shares to $13 from $11.10.
• T. Rowe Price (TROW) was upgraded to outperform from market perform at FBR Capital.
• JetBlue (JBLU) was upgraded to buy from neutral at BofA/Merrill.
• NetEase.com (NTES) was upgraded to buy from hold at Standpoint Research.

Another day, another airline fee and this time it's for carry-on luggage! Is there no limit to these fees? Spirit Airlines, out of Fort Lauderdale, Florida, is going to start charging a fee on August 1, 2010. The only group that is not chagrined are probably the nudists that travel light when vacationing.

Given all the fees the airlines are tacking on they might as well evolve into banks. Actually I think this is another instance where business has learned a bad lesson from government agencies. The government may require legislative action to raise taxes but bureaucrats the world over seem to be able to add new fees at will.

The silver lining to the travel slump last year was that fewer flights made it easier for airlines to hit their deadlines. In 2009, the airline sector had its best year for on-time arrivals since 2003, largely because many routes were cut as passenger traffic fell and companies looked for ways to cut costs. According to the Department of Transportation, airlines hit a 79.5% on-time rate last year (which includes flights that were within 15 minutes of their arrival time).

Hawaiian Airlines had the best record, but it's a small regional, lacking the challenges of the major carriers. Among the big guys, Southwest's (LUV) 83% on-time rate was best, and United's (UAUA) 81% was tops for traditional air carriers. Of course, these airlines and the rest of the sector were helped along by the fact that they pad their schedule, which makes it a hell of a lot easier to show up on time.

Today needed a strong jobs number to keep traders interested and to keep traders and investors from taking profits. A 10% unemployment reading and a loss of 85,000 non-farm payrolls for December was not enough. The drop in the dollar earlier today (based on the FOMC being able to keep a zero-rate) may have been the only thing that kept more profit taking by stock trading from coming. Here were today's unofficial closing bell levels:

Dow 10,617.06 +10.20 (0.10%)
S&P 500 1,144.93 +3.24 (0.28%)
Nasdaq 2,317.17 +17.12 (0.74%)

Top Analyst Upgrades/Downgrades