Congress voted to extend the tax credit and President Barack Obama signed it into law this morning, according to The Wall Street Journal. (ETFs get a lift from economic report).

An $8,000 line of credit will apply to contracts entered before April 30, 2010, and closed by June 30 for homes up to $800,000. The law will also create a new $6,500 credit for homebuyers who lived in their previous home for at least five consecutive years.

Income limits for eligible buyers are increased to $125,000 for single buyers and $225,000 for couples.

Economists for the National Association of Realtors calculated that the tax credit has contributed $22 billion to the economy and an estimated 2 million people will use the tax credit this year. NAR president Charles McMillan says the government incentive has helped stabilize the housing market, stimulate the economy and create jobs.

Naysayers think prolonging the tax credit will artificially keep home prices high.

The expansion and extension of the tax credit may also be advantageous for homebuilder ETFs as more house hunters jump into the market. (Positive signals for real estate ETFs)

For more information on homebuilders, visit our homebuilders category.

• iShares Dow Jones U.S. Home Construction (NYSEArca: ITB): up 18.5% year-to-date

• SPDR S&P Homebuilders (NYSEArca: XHB): up 21.7% year-to-date

• MACROSHS HOUSING UP (NYSEArca: UMM): up 16% since inception

Max Chen contributed to this article.

September pending home sales jumped 6.1% as homebuyers rushed to take advantage of a government tax credit. The $8,000 credit for first-time homebuyers ends at the end of this month. The number of sales of previously owned homes are now at their highest level in more than two years, reports Alan Zibel for the Associated Press. (More stories on the real estate sector).

• iShares Dow Jones U.S. Home Construction (NYSEArca: ITB)

U.S. manufacturing activity grew at its fastest rate in more than three years in October. The surge was unexpected, although some noted that it’s still improving at a modest pace, reports The Wall Street Journal. Construction spending also rose by 0.8%, although Wall Street expected a decline.

• Industrial Select Sector SPDR (NYSEArca: XLI)

CIT filed for bankruptcy this weekend in a last-ditch effort to keep operating. CIT is a lender to nearly a million small- and mid-size businesses. The lender was also a recipient of $2.3 billion in taxpayer bailout money, which will be wiped out in the bankruptcy, The Wall Street Journal notes. (How to harness the financial sector’s recovery).

Ford surprised Wall Street by announcing $1 billion in net income in the third quarter. The automaker has also forecast a “solidly profitable” 2011. Ford hasn’t posted a full-year profit since 2005, report Tom Krisher and Dee-Ann Durbin for the Associated Press.

Investors this week will be looking at various economic indicators for clues to the strength of the U.S. economy. One of the most anticipated reports is the Labor Department’s October employment report, which is due on Friday. The Federal Reserve is also going to comment on Wednesday after a two-day meeting.

New home sales had an unexpected 3.6% drop in September. Waning effects from the government’s tax credit for first-time homebuyers are being blamed for the decline, reports Alan Zibel for the Associated Press. September’s decline was the first since March. SDPR S&P Homebuilders (NYSEArca: XHB) is down more than 3% this morning. For more stories on real estate, visit our real estate category.

The Treasury Department and the GMAC, the former lending arm of General Motors, are in talks for a third round of taxpayer-funded aid. The Treasury mandated that GMAC raise another $11.5 billion after stress tests, but the lender has had to go back to the government for more cash, Reuters reports.

ConocoPhillip’s (NYSE: COP) announced its third-quarter earnings fell 71% from a year ago. The company blames lower gas and oil prices along with poor refining margins, reports Isabel Ordonez for Dow Jones Newswires. Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) are expected to report lower earnings tomorrow and Friday, respectively. Vanguard Energy (NYSEArca: VDE) is down more than 2% this morning; ConocoPhillips is 6.6%; Chevron is 13.1%; and Exxon is 19.5%.

Durable goods orders in September climbed, which is being hailed as a favorable sign for U.S. manufacturing. The 1% jump is the fourth increase in six months, reports Greg Robb for MarketWatch.

For more stories on oil, visit our oil category.

Among the economic reports that left Wall Street with mixed feelings include

• In September, wholesale prices made a surprise drop thanks to lower energy costs. The Producer Price Index declined 0.6%, but economists were expecting a flat reading. In the year ending September, the index fell 4.8%, reports the Associated Press.
• Applications for hosing permits fell by the largest amount in five months in September. The applications help gauge future housing activity. Some suspect that the drop came amid concerns that Congress wouldn’t continue its tax credit for first-time homebuyers, reports Martin Crutsinger for the Associated Press. SPDR S&P Homebuilders (NYSEArca: XHB) is down about 1.2% this morning.

Earnings reports this morning were mostly better than expectations despite some losses:

• Caterpillar (NYSE: CAT) announced that its profit declined 53% in the third quarter. But the equipment maker is already looking ahead, saying that it expects its prospects to improve next year as the economy strengthens, reports the Associated Press. There are already signs of growing demand in Asia, and Caterpillar generates 70% of its sales overseas. PowerShares Global Emerging Markets Infrastructure (NYSEArca: PXR) is down about 1.5% this morning.

• Coca-Cola (NYSE: KO) saw its third-quarter profits move high, but sales took a hit from falling consumer purchases of carbonated beverages. The amount of soda shipped grew 2%, but fell 4% in North America.
• Drugmaker Pfizer (NYSE: PFE) reported a profit, thanks to cost-cutting that made up for declining sales. The company intends to keep cutting costs because it has the biggest drug industry deal of the year: a $68 billion acquisition of Wyeth. iShares Dow Jones U.S. Pharmaceuticals (NYSEArca: IHE) is down about 1% this morning.

Oil prices briefly topped $80 a barrel this morning, but retreated as soon as the dollar began to strengthen against the euro. It was the first time in a year that oil topped $80, reports the Associated Press.

While investors aren’t heading for the exits, talk of a potential correction persists. But if you’re in the markets now, you have participated in the rally. (And if you’re not in, read about rebuilding your portfolio here). And like most investors, you probably want to protect those gains, not lose them.

Jeff Cox for CNBC has seven ideas on how to keep your gains safe, and we’ve thrown in some of our own, as well:

1. Emerging/Overseas Markets: Investors are moving away from a solely domestic portfolio, and moving assets overseas to cultivate diversity and keep exposure to foreign markets. By remaining quick and conservative, the markets such as China or Russia can help spread out the risk. Read about their economies here).

• iShares MSCI Emerging Markets (NYSEArca: EEM)

2. Energy: This sector remains to be a mainstay within a portfolio, as crude prices will stay low in the near term but could go significantly higher when supply becomes an issue again. Find out what may happen with oil prices here).

• United States Oil (NYSEArca: USO)

3. Choose ETFs: While some market pros now are cautioning against playing the entire market and suggest choosing single stocks instead, consider ETFs. Choosing a winning stock in a sector can be a daunting challenge, while an ETF can give you instant exposure while spreading out the risk.

4. Play Defense: Security can be found in names that traditionally provide security while the market looks for further direction. Consider what’s happening in consumer staples: consumers are staying at home, cooking more meals in and buying those old familiar name brands.

5. Gold: Gold prices have risen along with the stock market and economic indicators, indicating that investors want some downside protection should the rally fade. This has pushed the price of gold to new records. Can the rally go on? Read about it here.

• SPDR Gold Shares (NYSEArca: GLD)

6. Homebuilders: This beaten-down sector is poised to go higher, however, supply has a lot to do with it. While there have been a slew of factors cited—leveling in prices, low mortgage rates, government intervention—supply and demand will be the key in a true recovery for this sector.

• SPDR Homebuilders (NYSEArca: XHB)

7. Technology: Consumer electronics was the 11th strongest sector in the third quarter, up 44%. Some believe that this sector will continue to move higher.

• Vanguard Information Technology (NYSEArca:VGT)

8. Have an exit strategy. We use the 200-day moving average as a guide for when to get in and when to be out of the markets. For more ideas about trend following and creating a defensive strategy, check out the The ETF Trend Following Playbook, on shelves now.

For more stories about portfolio protection, visit our trend following category.

Alcoa Aluminum (NYSE: AA) is the first of the 30 components of the Dow Jones Industrial Average to report earnings after the bell. Meanwhile, Costco (Nasdaq: COST) reported that its fiscal fourth-quarter profit fell 6%, but it exceeded expectations. The retailer blamed a stronger dollar and the rising cost of providing benefits to employees. Family Dollar (NYSE: FDO) also reported that its profits rose 13%, beating expectations.

Family Dollar’s report underscores the weakness in consumer spending and shows that shoppers are still looking for value when they buy. (Read more about consumer staples here).

Gold is continuing to soar to new records, reaching $1,048.25 an ounce, reports Matthew Walls for The Wall Street Journal. Traders believe that gold could easily surpass $1,050 and even hit $1,100 an ounce. SPDR Gold Shares (NYSEArca: GLD) is trading flat so far this morning. (For more stories about gold ETFs, visit our gold category).

There’s speculation that Congress isn’t going to extend a tax credit for first-time homebuyers, which is sending homebuilder and real estate ETFs lower. The deadline for the program to end is Dec. 1. (For more stories on the real estate sector, visit our category).

Consumer credit fell 7.5% in August, the seventh consecutive decline, reports the Associated Press. The report covers credit cards, auto loans and other revolving credit. Excluded from the report are mortgages and other debt secured by real estate.

The most disappointing reports came from the manufacturing industry and the jobless sector. Manufacturing activity dipped to 52.6, down from 52.9 in August. It was below analysts’ expectations, but it was the second consecutive month in which the reading came in above 50, indicating expansion, reports Tim Paradis for the Associated Press.

The Labor Department said jobless claims rose to 551,000, which was more than expected. The increase follows three weeks of declines. Economists expect that the unemployment rate will rise to 9.8%, up from 9.7% in August.

Construction spending rose 0.8% in August, thanks to higher outlays for homes, reports Rex Nutting for MarketWatch. But the increase really only offset a downward revision to July’s spending numbers, which declined 1.1%.

In better news, pending home sales rose to a two-and-a-half-year high, jumping 6.4% from July. The number beat forecasts, and the jump was the seventh straight increase, reports Alan Zibel for the Associated Press.

• iShares Dow Jones U.S. Home Construction (NYSEArca: ITB): up 26.1% year-to-date

Consumer spending has also jumped sharply in August thanks to things like the “cash for clunkers” program. The 1.3% jump was the largest in nearly eight years, but economists caution that this jump isn’t laying any foundation for an economic recovery. Automakers are already girding themselves for a drop in September sales, reports Jack Healy for The New York Times.

For more stories on consumer activity, visit our retail category.

For a majority of companies, third-quarter results could be below those of 2008, with per-share profits for the S&P 500 at a projected drop of 15.4%. More than 340 businesses could see a year-over-year drop in profits, according to Zacks. Projected revenues show median company sales may drop 7.2%, with more than 360 companies expected to experience a year-over-year drop in earnings.

There are a lucky few that are forecasting actual earnings growth compared to last year:

Homebuilders. First off, conditions were already deteriorating and mortgages were hard to come by last year. Secondly, more new and existing home sales translates to a more stable housing market.

• SPDR S&P Homebuilders (NYSEArca: XHB): up 35.4% year-to-date

Insurance. Insurance companies can potentially pull off double-digit growth. Some firms can bounce back higher from prior-year losses while others may see true growth. Property and causality insurers have been sparred by a calm hurricane season so far, and most insurers benefited from a recovering financial market.

• KBW Insurance (NYSEArca: KIE): up 33.2% year-to-date

Health Care. The medical sector is still raking in the profits. The sector is not correlated to commodity prices and is less economically sensitive. The result is that medical companies are showing both revenues and earnings growth this quarter.

• Vanguard Health Care (NYSEArca: VHT): up 12.7% year-to-date

On the flip side, here are a few sectors that could report contractions:

Commodity. Commodity-related companies reported strong profits last year and as a result, energy and metals companies may show drops in third-quarter profits this year.

• iShares Dow Jones U.S. Oil & Gas Ex Index (NYSEArca: IEO): up 33.8% year-to-date

• PowerShares DB Base Metals (NYSEArca: DBB): up 53.7% year-to-date

Banks. Many banks still remain unprofitable. High joblessness, high level of foreclosures and poor real estate market all affect banks. The result is a projected report of losses for the sector.

• iShares Dow Jones U.S. Financial Sector Index Fund (NYSEArca: IYF): up 20.1% year-to-date

Max Chen contributed to this article.

The Commerce Department reported that new home sales rose 9.6% in July, marking the fourth straight monthly increase and beating expectations, reports Alan Zibel for the Associated Press. Sales rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000 and are now up 32% from the bottom in January. The news sent the iShares Dow Jones U.S. Real Estate Index (IYR) up 0.3% in morning trading.

The real estate sector was given yet another boost as the Mortgage Bankers Association reported that mortgages applications to refinance loans jumped 12.7%. This is yet another indicator that homeowners are confident that the housing market is on the mend.

In the manufacturing industry, a report indicated that a surge in the demand for aircraft pushed new orders for long-lasting U.S. manufactured goods up at their fastest pace in two years. Durable goods orders in July rose 4.9%, the largest advance since July 2007, after falling 1.3% in June. New orders for transportation equipment, including vehicles and aircraft, jumped 18.4%, while capital goods rose 9.5%, reports Elizabeth Stanton for Bloomberg.

The Office of Thrift Supervision reported that U.S. thrifts squeezed out a $4 million profit in the second quarter, marking the industry’s first positive earnings since the third quarter of 2007. Although encouraging, unfortunately, the industry is not out of the woods yet as “problem thrifts” on the agency’s list continue to increase. Thrifts having significantly low capital reserves and other deficiencies rose to 40, up from 31 last quarter and 17 a year earlier. The news sent the Regional Bank HOLDRs (RKH) up 0.8% in morning trading.

Overall, all three major U.S. indexes rose in morning trading with the Dow Jones Industrial Average adding 0.2%, the S&P 500 jumping 0.2% and the Nasdaq adding 0.1%.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.

What are the arguments in favor of recovery?

• Homebuilder confidence is up. The National Association of Home Builders/Wells Fargo confidence index climbed to 18, the highest since June 18, reports Bob Willis for Bloomberg. A reading below 50 means most respondents view conditions as poor. Builders will eventually begin to start construction back up from record lows.

• Government credits and lower prices may have helped those first-time homebuyers to heal the broken housing market.

• Home prices notched their first quarterly increase in three years today, reports J.W. Elphinstone for the Associated Press. The reading is, however, still down nearly 15% from last year.

• Things have stopped getting worse, and this is the first step to getting better. The marketplace is glutted with inventory, he says, which puts further pressure on prices and total sales — not to mention the need for new houses. This will create more buying opportunities, writes Dan Burrows for SmartMoney.

• Burrows also notes that the bottom or low point in valuations and sales is past, however, there is still a ways for falling prices in areas such as California and Florida. When prices truly stabilize, home builders’ gross and operating margins will improve – and so too will their bottom lines.

• Same-store sales growth in the key markets of Florida, California, Nevada and Arizona where housing has been hit hardest, in such stores that are based on home improvement.

• SPDR S&P Homebuilders (XHB): up 28.6% year-to-date



• iShares Dow Jones U.S. Home Construction (ITB): up 33.2% year-to-date

For more stories about homebuilders and real estate, visit our real estate and homebuilder category.