Everything was looking up this morning, up until the reaction to companies and their earnings reports. The market felt directionless all day after losing its initial gains despite a new home sales data release that was well above expectations. Ben Bernanke defended his stance on avoiding the next depression. The SEC also issued new short sale abuse guidelines.

Here are today's unofficial closing bell levels:

Dow 9,108.59 +15.35 (0.17%)
S&P 500 982.19 +2.93 (0.30%)
Nasdaq 1,967.89 +1.93 (0.10%)

Top 10 Analyst Upgrades and Downgrades

Alltel Wireless, which is in the midst of being acquired by Verizon Wireless (making the carrier the largest in the U.S.), wants to shake up the wireless industry of sorts. How? Require one-year contracts for its new wireless subscribers without raising the subsidized prices of its wireless handsets.

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

• Baidu Inc. (NASDAQ: BIDU) reported better-than-expected Q1 earnings as revenues surged in the quarter.
• Burger King Holdings Inc. (NYSE: BKC) just beat Q3 expectations despite weak same-store sales growth.
• Corn Products International Inc. (NYSE: CPO) Q1 results were dragged down by higher corn costs.
• Dow Chemical Co. (NYSE: DOW) Q1 earnings sank on falling sales, job cuts and acquisition costs.
• Eastman Kodak Co. (NYSE: EK) reported a deeper-than-expected Q1 loss and suspended its dividend.
• Energizer Holdings Inc. (NYSE: ENR) posted better-than-expected Q2 earnings but revenue declined.

Verizon Wireless, a unit of Verizon Communications Inc. (NYSE: VZ) closed on the $28.1 billion acquisition of wireless rival Alltel Wireless late last week and is now the largest wireless company in the U.S., leapfrogging AT&T, Inc. (NYSE: T). The purchase amount includes $5.9 billion in equity and $22.2 billion in debt from TPG Capital, which had purchased Alltel for $27.5 billion in the spring of 2008.

Although it was a short-term deal that TPG Capital was after (it made some money, after all), Verizon is once again the top dog in U.S. wireless service. For some reason, the industry is insisting on combining all kinds of competitors to leave just a handful of them to serve customers. Will this combination be in the best interest of consumers? It doesn't matter. Like most mergers, it is meant to bring in more revenue and try to stem the losses Verizon Wireless has seen since AT&T became the exclusive distributor for Apple, Inc.'s (NASDAQ: AAPL) enormously successful iPhone.

Verizon's customer base of more than 83 million customers will now be the force to reckon with when newer devices are created by manufacturers and wireless carriers are looked at as release partners. With Verizon and Alltel both using the same technical standard -- unlike the disastrous Sprint and Nextel merger of 2005 -- this new entity is setting itself up from the start to be the pre-eminent wireless company in North America. Let's see if it can remain that way.

During the challenging market conditions over the past year, the telecom sector has felt its fair share of the pain. BusinessWeek brings Standard & Poor's Todd Rosenbluth who suggests that some of these telecommunication stocks could now be good investments for traders as they have a safe dividend.

Despite worries tied to the slowing U.S. economy and increased competition, "we think that some of the concerns are overdone and believe selective stocks are attractively valued," Rosenbluth stated. Rosenbluth also noted that telecom stocks have started showing signs of recovery for the past few weeks, helped by the launch of new handsets and merger and acquisition agreements.

Some of investors' favorite companies are AT&T Co. (NYSE: T) and Citizens Communications Co. (NYSE: CZN). Rosenbluth believes that the launch of Apple (NASDAQ: AAPL)'s new iPhone, 3G iPhone, will stir increased demand for smartphones, helping such companies, while putting pricing pressure on some of their competitors.

Now that Verizon Wireless has agreed to purchase privately held Alltel from its private equity owners (giving them a small profit and an out), what else is on tap for the soon-to-be largest wireless carrier in the U.S.? Verizon Wireless is chomping at the bit to overtake AT&T Inc. (NYSE: T) as the largest wireless carrier in the U.S., and its acquisition of Alltel will give it an 8 million+ wireless subscriber advantage over Ma Bell.

Although Alltel's buyout by Verizon was expected last year, it's now going to finally happen. Both companies use the same technical wireless standard, so this will be an easy merger. There will be no issues like when Sprint merged with Nextel in 2005 and the two incompatible networks caused an epic failure of those two companies to merge into one. Speaking of Sprint Nextel Corp. (NYSE: S), where does it play into the Verizon-Alltel landscape? Does its WiMAX plans now become derailed with the Verizon announcement, adding more insult to injury about the state of the company?

If anything, look for Verizon to take a strong look at buying Sprint Nextel shortly after its deal with Alltel closes. There would be way more regulatory scrutiny than the Alltel deal (overlapping markets, etc.), but a one-two knockout punch like this would make Verizon Wireless the pre-eminent wireless carrier in the U.S. for a long time. AT&T would have no choice but to plead with Deutsche Telekom to buy T-Mobile USA, the nation's fourth-largest wireless carrier, and one who also shares the same type of technical network as AT&T. Perhaps 2009 will see some of the neatest consolidation in the wireless world yet.

Traditionally, strategic buyers have an edge over financial buyers (that is, private equity funds). Essentially, they have the advantage of revenue and cost synergies. However, when debt became dirt cheap over the years, financial buyers had a big advantage and were able to out bid strategic bidders.

Of course, with the credit crunch, this is over. And, yes, strategic buyers are coming to the table – and even talking to the portfolio companies of private equity funds.

Alltel Wireless, the private mobile telephone services company that just keeps on grinding along really well, added just over one million new subscribers to its ranks in the company's most recently completed quarter. This is a number often seen by larger competitors like AT&T, Inc. (NYSE: T) and Verizon Wireless, but not by the fifth-largest cellular carrier in the U.S.

It's odd that larger carrier Sprint Nextel Corp. (NYSE: S), which uses the same technology as Alltel, lost over a million customers in its most recent quarter. In fact, it seems the top five cellular carriers in the U.S. are all experiencing growth -- except Sprint Nextel. I mean, is Sprint Nextel's service that bad compared to fellow carrier Alltel? Must be, since customers are leaving in droves. Sprint didn't say whether it was Nextel customers who left in huge numbers or Sprint customers. You see, the merger between the two companies, which is a complete disaster, relied on a fusion of two incompatible technologies that never happened.

Why haven't Sprint and Alltel decided to come together? The companies use the same technology and some areas would have to be divested, similar to areas AT&T had to sell when it merged with Cingular Wireless years ago. Still, Sprint Nextel needs a lifeline and CEO Dan Hesse has one monumental task in front of him. Having a laggard company join with a company that's smaller -- but growing much more rapidly -- would not be a bad thing. That is, if he can convince Alltel's owners that perhaps a merger between the two companies would be a good thing.

Sprint Nextel(NYSE:S) is bleeding customers every quarter, is canceling service on other customers that use customer service resources too much, and is now hanging up service on customers who roam off its network excessively. Is this wireless carrier cleaning house or heading down some kind of path of public relations destruction? To make things worse, the roaming customer cancellations were dropped on U.S. soldiers, of all people.

Sprint gives away "free nationwide roaming" to customers of most of its current wireless calling plans, but does not explicitly specify how much customers can roam off its network. Say, for example, you buy Sprint Nextel wireless service since a coverage map shows that there is service where you need it. You arrive at this place (home, office, summer home, military training, etc.) and find out that Sprint's coverage is not quite what is needed for a decent wireless phone conversation. You set your phone to "roam" and off you go, probably using the Verizon Wireless or Alltel (NYSE:AT)national networks since they both use the same technology as Sprint's.

A short time later, you receive a cancellation notice from Sprint. Wha? This is what appears to have happened to about 200 soldiers that recently returned from Iraq and were sent to training at West Point. In addition to these U.S. soldiers that had to roam to get service, other Sprint Nextel customers who apparently use more than 50% of their minutes off of Sprint's network are being dropped as well. Sprint is really giving itself a bad eye here, even though it has said that all these cancellations were "researched heavily." But with no prior notice given to these customers, it is putting its foot in its mouth. Again.

The expanding credit spreads between corporate bonds and treasuries, and in particular between junk bonds and treasuries, have also led arbitrage spreads to widen. Deals that will be financed and closed have spreads that warrant investors' attention. There may be some easy money to be made as a result.

Deals worth looking at, according to Barron's , include:

• Alltel Corporation (NYSE: AT) trading for $67.80 with take-out price of $71.50-12% annualized rate of return.
• Clear Channel Communications (NYSE: CCU) trading for $37.70 with take-out price of $39.20-10% annualized rate of return.
• First Data Corporation (NYSE: FDC) is selling for $32.65 and has a take-out price of $34-for an 18% annualized return.
• Harrah's Entertainment Inc (NYSE: HET) is selling for $85.25 and has a take offer of $90-14% annualized rate of return.
• Tribune Company (NYSE: TRB) is trading at $29.50 with a take-price at $34-30% annualized return.
  
• The most attractive arb play from a return perspective is Tribune but that deal also carries the most risk. Tribune already has a considerable amount of debt and is attempting to add more debt and use the company's ESOP plan to close the deal. In addition, the fundamentals of the newspaper industry continue to remain not very good.

Use the widening arb spreads to make some nice money. Cash available to finance these deals is still aplenty. Lending terms are simply coming back to the planet earth, as sensible lending covenants are re-introduced.

MOST NOTEWORTHY: Cheesecake Factory (CAKE), Buffalo Wild Wings (BWLD), Alltel (AT), Home Depot (HD) and Nokia (NOK) were today's more noteworthy downgrades:

• Cheesecake Factory (NASDAQ: CAKE) was downgraded to Sector Perform from Outperform at CIBC, to Outperform from Strong Buy at Raymond James and to Peer Perform from Outperform at Bear Stearns after the company reduced its second quarter guidance.

• Buffalo Wild Wings (NASDAQ: BWLD) was cut to Neutral from Buy at Merriman on valuation.

• Lehman downgraded Alltel Corp (NYSE: AT) to Equal Weight from Overweight as the firm doesn't expect a competing bid for the company.

• Home Depot (NYSE: HD) was cut to Market Perform from Outperform following yesterday's rally and feels that with the HD sale out of the way, the focus will now turn to Home Depot's ability to grow in the challenging do-it-yourself retail market. Goldman cut Nokia to Neutral from Buy on valuation...

OTHER DOWNGRADES:

• JP Morgan cut Headwaters (NYSE: HW) to Underweight from Neutral.

• Citigroup downgraded Prudential Financial (NYSE: PRU) to Hold from Buy.

• Matrix USA cut Phototronics (NASDAQ: PLAB) to Sell from Hold.

• Ferris, Baker downgraded Gladstone Commercial Corp (NASDAQ: GOOD) to Neutral from Buy.

• Citigroup removed Office Depot (NYSE: ODP) from its Citi Recommended List.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Heading to Memorial Day, there's certainly no moratorium on the number of talked about potential deals. Receiving a fair amount of attention over the last few days include the companies below. There's more, of course, but hey, it's a three-day weekend.

LAM RESEARCH CORPORATION (NASDAQ: LRCX)

This supplier of tools that makes microchips keeps seeing its stock move up. Up about 13% over the last few months. And it may be more than speculation that it will soon be acquired. Investors looking for a deal are snapping up equity calls, some are then selling them, and keeping both eyes on the stock price. Others are looking out to see which private equity firms or "strategic" buyers come calling.

AMDOCS LIMITED (NYSE: DOX)

As Alltel Corporation (NYSE: AT) goes, so goes Amdocs? Well, not quite. Yes the Alltel sale has pushed Amdocs' stock upward. Some say this maker of software products for telecom services firms may want to continue to go forward by themselves. But that hasn't stopped that list of potential buyers from being passed around. Best bet: International Business Machines Corporation (NYSE: IBM).

CIRCUIT CITY STORES (NYSE: CC)

Again, here we go: Is it going to take a buyout? (Read: private equity buyer.) Or a miracle? (Read: new management) There are profit warnings. (Read: red flags everywhere) The stock is in miserable shape. (Read: cheap) Tough competition. (Read: Wal-Mart Stores Inc (NYSE: WMT)). Think there's a book to be written about all of this? (Read: who'd want to?).

APPLEBEE'S INTERNATIONAL INC (NASDAQ: APPB)

Food for thought. Kangaroo Holdings wants to buy OSI Restaurant Partners Inc (NYSE: OSI). Not surprisingly, Applebee's stock goes up. Are they cooking up a sale price for themselves as they "evaluate" offers? You betcha.

PALM INC (NASDAQ: PALM)

Going, going...almost gone. Even we're beginning to tire of this one. But it never gets old if you like to watch. Now, they're canceling conferences. The CEO is selling shares. The CFO has a bad back. Come on! The latest product review - Palm Treo 755p - is terrible. Market share is going down the tubes. R&D? Forgetaboutit. Sound like a company on the go? Right. Right into someone else's lap. And to think what they once were. Great job all around, everybody.

MOST NOTEWORTHY: GlaxoSmithKline plc (GSK), SanDisk Corp (SNDK), Lockheed Martin Corp (LMT) and aQuantive, Inc (AQNT) were today's noteworthy downgrades:

• Deutsche Bank and ABN Amro cut GlaxoSmithKline (NYSE: GSK) to Hold from Buy following the New England Journal of Medicine warnings from Avandia.

• Merrill Lynch cut SanDisk (NASDAQ: SNDK) to Neutral from Buy due to concerns that oversupply in the industry will extend through next quarter.

• Cowen downgraded shares of Lockheed Martin (NYSE: LMT) to Neutral from Outperform based on slower 2007-2008 EPS growth and less cash redeployment upside than General Dynamics Corp (GD) and Raytheon Co (RTN).

• UBS downgraded aQuantive (NASDAQ: AQNT) to Neutral from Buy and RBC Capital cut shares to Sector Perform from Outperform after the Microsoft (MSFT) acquisition...

OTHER DOWNGRADES:

• Piper Jaffray downgraded Cytyc Corp (NASDAQ: CYTC) To Market Perform from Outperform.

• NetBank, Inc (NASDAQ: NTBK) was downgraded to Underperform from Market Perform at Friedman Billings.

• Merrill Lynch downgraded shares of Aeropostale, Inc (NYSE: ARO) to Neutral from Buy.

• AG Edwards downgraded BHP Billiton Ltd (NYSE: BHP) to Hold from Buy.

• Gabelli downgraded shares of Alltel Corp (NYSE: AT) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Sprint Nextel Corp. (NYSE: S) opened at $21.00. So far today the stock has hit a low of $20.99 and a high of $21.67. As of 11:50, S is trading at $21.37, up $0.58 (2.8%).

After hitting a one year high of $22.82 a full year ago, the stock dove to a year low of $15.92 in August. S has been gradually rising over the past several months, establishing some new support around 20. Sprint is benefiting from Alltel's (NYSE: AT) agreement to a $27.5 billion private takeover deal. Recent technical indicators for S have been bullish and deteriorating slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $18 range. S hasn't been below $18 since February and has shown support around $20 recently. This trade could be risky if demand the stagnating phone business worsens even more, but even if that happens, S has been in a slow, steady upward trend the past 10 months.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a positions in S or AT.

Alltel Wireless will be far more competitive following the $27 billion buyout by divisions of Goldman Sachs Group Inc. (NYSE: GS) and Texas Pacific Group.

How fast will Alltel be able to scale its customer base and compete with the big four wireless companies? Much faster as a private company if you ask me.

Without quarterly numbers to hit, the company can pour capital into becoming what it has the potential to be and at some future time re-enter the market for the payoffs for GS Capital Partners and TPG Group. Until then, we'll all see what Alltel can do to compete with the larger carriers over time. With this buyout probably having been in the works for most of 2007, you can bet a solid plan is already in place.

With 12 million customers. Alltel is the fifth-largest wireless company behind AT&T Inc. (NYSE: T), Verizon Wireless, Sprint Nextel Corp. (NYSE: S) and T-Mobile USA. It owns wireless liceneses giving it coverage area bigger than the larger four carriers, which is a huge attraction for the private equity firms who already are drawn to the red-hot wireless industry.

The upside is great for this deal since people are dropping land line telephones and moving to the wireless and Internet telephony.

Now it's time to execute.