The market was able to stage a late day rally which erased some of its earlier losses, but still ended the day in the red, with all 3 major indexes closing down on the day.

September is typically not a good month for the market, but even with today's losses this September was positive, as more and more investors have started to believe the economy is coming out of its recession.

A little more good news for the struggling housing market Tuesday, as a closely watched home price index showed increases in prices for the third straight month in July.

The news comes from the Standard & Poor's/Case-Shiller home price index, which shows that home prices rose by 1.2% from June to July.

The S&P 500 may be down slightly this Friday afternoon after a fairly flat week, but that does not mean that all traders are bearish. In fact, option traders still appear to be quite bullish. Investors buying call options still outnumber put option buyers by more than 2 to 1 in the S&P 500 SPDRs ETF (SPY) for the September at-the-money strike price.

When a traders buys a call option they think the stock is going to go up, and when they buy puts they think the stock may go down. The ratio between calls and puts is often looked at as a reflection of underlying trader sentiment. Significant changes in this balance may indicate that sentiment is changing.

This post was written by Minyanville contributor Fil Zucchi.

It's well known by now that the corporate bond market, from high yield to investment grade, has had a mind numbing move up, and this rally is beginning to be used as an explanation/reason why the equity markets will have no choice but to follow suit. To keep things in perspective, here are some comments from last week conference call by the Morgan Stanley (NYSE:MS) corporate credit team:

• Despite the deleveraging process many companies have undertaken, on an EBITDA/Debt ratio junk rated companies are as leveraged as they have ever been thanks to the "complete trashing" of cash flows. MS expects leverage ratios to rise even further and, therefore, from a "leverage-risk to yield" basis, junk spreads are way too tight to reward buyers for the underlying default risk.
• In the residential Option ARMs market, delinquency rates as a percentage of original balances are running higher than they were in subprime. On the other side of the ledger – and confirming what is intuitively logical – recoveries as a percentage of balances are significantly lower and falling, which will continue to put heavy pressure on home values. In the Alt-A market things are not going that well either.
• In the Commercial Mortgage Backed Securities (CMBS) world, Standard & Poor recently implemented new tests to determine the downgrade of various CMBS vintages. The test for the 2004 issues was relaxed, which is likely to spare from downgrade 65% of AAA rated CMBS which had been put on negative watch. Under the prior, stricter test, 80% of the watch list issues were in danger of downgrades. Are we really to believe that the relaxation of the testing standards for issues that are coming up for refi between now and the next two years are just a coincidence?
• What caritas the S & P showed toward the 2004 CMBS it apparently took it out on the mezzanine CMBS of 2006 and later. Most AAA mezz tranches are or will be downgraded to A/BBB- grades, while all junior AAAs tranches have gone straight to junk.

On Friday June 5, the U.S. Labor Department will release the unemployment numbers for May. Here are some guesstimates from leading economists:

• The median of 59 estimates will show that unemployment is at 9.2%, the highest since 1983.
• The jobless rate may reach 10% by the end of the year.
• Estimates are that payrolls fell by 521,000 in May after declining by 539,000 in April.
• The median of 60 estimates showed the job losses peaked at 741,000 in January.
• The economy has lost 5.7 million jobs since December 2007.

This post was written by Minyanville contributor James Kostohryz.

As per the trade I laid out yesterday, with today's durable goods orders number that was significantly better than expected, we might be looking at S&P 930 today rather than sub 900 if the market had not gotten blindsided by yesterday's sudden plunge in long bonds. That's what stops are for.

But let's put this in perspective: A 12-point drop between yesterday's high of around 913 and the current level of 901 is small potatoes relative to what is at stake here.

Can you imagine this! The outlook in the UK has been downgraded by Standard & Poor's to negative from stable. To underscore the dire economic circumstances in the UK, Standard & Poor's David Beers said: "We have revised the outlook on the UK to negative due to our view that even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term." Yet the Agency did maintain the UK's long term sovereign credit rating at AAA.

The report triggered a drop of 1.2% in the pound to $1.5529 to the dollar and 1.4% against the euro to .8866 pounds.

The market is down again today and there are millions of people trying to figure out why. Some will tell you they know why and give you a plausible rationale. There may be bits of truth here and there but there is also an arbitrary nature too. If not arbitrary, then haphazard.

The market may be down because nobody in Washington - Obama, Benanke or Geitner - made a speech today pounding the drum for a brighter economic outlook.

It could be because oil prices have been slowly rising again as inventories are drawn down.

Oil prices have been steadily heading higher the past month, and today was no exception, as the precious crude managed to close today's trading at its highest value in 2009.

While we are still no where near the record high prices we were seeing last summer, oil has managed to slowly creep its way up to $54.58 a barrel. This was after a rise on the day of $1.73, and it is a clear sign that analysts believe that global demand is about to move in oil's favor.

This post was written by Minyanville Executive Editor Keving Depew.

Quick: the next 700 points on the S&P 500; up or down?

I remember when that question required some thought, around 1200 or so. Regardless, it is interesting to me as someone who also manages some longer-term investment accounts (with time frames exceeding 10 years) that people seem to be more concerned with the direction of the next 100 points than the next 700.

Home prices continued their downward spiral in the fourth quarter, posting a record drop in values.

One of the most widely watched indexes for home values is the Standard & Poor's/Case-Shiller U.S. National Home Price Index and, according to data released today, the index dropped by an amazing 18.2% during the fourth quarter when compared with the same period in 2007. This marks the largest quarterly drop in the 21 years that the index has been tracking home prices.

Diamond Offshore Drilling (NYSE: DO - option chain) shares have been just about flat today after Standard & Poor's (NYSE: MHP) announced that the company will be added to the S&P 500 Index on a date still to be determined, replacing Weatherford International Ltd. (NYSE: WFT). This usually causes a surge in stock value as all the ETFs that track the S&P 500 now have to rush to add DO positions.

While DO is not rising today, it is also not falling sharply like the rest of the market, especially when compared to its peers like Transocean (NYSE: RIG), which just reported slowing earnings today and is down by more than 5%. If you think that DO won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on that stock.

The Wall Street Journal (subscription required) has obtained a draft version of the SEC's report on bond-rating firms and their role in the credit bubble, and some of the stuff is pretty scary.

In one e-mail, a staffer at Standard & Poor's, which is own by McGraw-Hill (NYSE: MHP) told another that "we rate every deal," and that "it could be structured by cows and we would rate it."

Another wrote that "rating agencies continue to create" an "even bigger monster -- the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters. ;O)"

Yes -- complete with the smiley face. If this seems reminiscent of disgraced analyst Henry Blodget's e-mails bashing stocks he was publicly pumping during the dot-com bubble, that's because it's exactly the same. The lesson here, once again, is this: e-mails ever really get deleted permanently and, if you're being shady or doing something unethical, make a phone call, talk with the person in a dark alley, or send them a letter that they can promptly discard. Don't send an e-mail!

Of course, S&P's investment-grade ratings on CDOs stuffed with dodgy loans turned out to be wildly optimistic, and the house of cards has done more than falter -- it's brought down Bear Stearns and wreaked havoc on the economy.

Now that the SEC has had some time to sift though all the evidence of why credit rating agencies were so wrong in their view of mortgage-backed securities, the most disturbing finding is that S&P analysts thought their own conclusions about risk were often wrong.

According to The Wall Street Journal (subscription required), an S&P analytical staffer emailed another that a mortgage or structured-finance deal was "ridiculous" and that "we should not be rating it."

What should the government do now that it has the goods? It could fine S&P, and probably will. The fine could never be large enough to match the hundreds of billions of dollars lost by financial firms that put money into the securities. The SEC could bring charges against some of the analysts. As it is, some of them will probably lose their jobs.

The most sensible solution would be to bar S&P from rating derivatives at all. Would that leave a hole in the market? Probably. Other credit agencies might have been involved in similar misdeeds. That would mean they would have to exit the business as well.

The net effect of moving credit ratings out of the business of covering derivatives would almost certainly mean a huge drop-off in the market for the instruments. That might not be such a bad thing.

Douglas A. McIntyre is an editor at 247wallst.com.

Analysts at some of the large credit ratings agencies may have had their eyes on the cash register instead of paying attention to the quality of their work. So says the SEC.

According to The Wall Street Journal, "The 10-month examination uncovered poor disclosure practices, a lack of policies and procedures guiding the analysis of mortgage-related debt, and insufficient attention paid to managing conflicts of interests."

That revelation all but buries the already damaged reputations of the ratings firms.

Making money is OK, but the practices may have lost investors billions of dollars. The big credit rating shops like Standard & Poor's have the job of evaluating the risk of products like mortgage-backed securities. Investment banks and their clients thought this paper was fairly safe. It did not turn out that way, not by a long shot.