Merger Monday returned in epic fashion as nearly $22 billion in deals provided just the tonic the market needed to erase last week's losses as the Dow Jones Industrial Average booked a third consecutive day of triple-digit gains. The S&P 500 gained over 2% and the Nasdaq closed with a gain of just under that mark. The Russell 2000 was the real standout with a pop of over 3%.

Market Stats

While the mergers and acquisitions news was the highlight of the day, that does not mean all the news was good. Concerns remain on the economic front as the Empire State Manufacturing Survey of General Business Conditions slumped to -7.7 in August from -3.8 in July. That is good for the third consecutive monthly decline and the August reading was well below the -0.4 economists were forecasting. Make of that report what you will, but it would indicate there is still a chance of a double-dip recession.

Empire State Manufacturing Index

The other side of the coin is that if the economy does not ebb back into recession, the market could be on the cusp of bottoming for the year. That is the sentiment of some analysts and pundits quoted by several mainstream financial news sources today. A less bad economic outlook and equity valuations that still remain well off their 2011 highs could prompt more M&A activity as companies look to part with some the cash reserves they built up during the financial crisis.

Whether heightened M&A activity leads to rich takeover premiums is another story, but there was at least one example of rich premium being paid today and it came courtesy of Google (GOOG), the largest U.S. provider of Internet search services. News that Google will acquire Motorola Mobility Holdings (MMI) for $12.5 billion sent the maker of phones that run on Google's Android operating system soaring by almost 56%.

To be sure, Google's $40-a-share offer for MMI is a rich premium. It values the spin-off of the old Motorola at 63% above Friday's closing price and 73% above the stock's 20-day closing average, according to Bloomberg data. The 63% is also nearly double to what buyers paid in 360 wireless sector deals over the past five years, Bloomberg reported.

Google also offered up a hefty $2.5 billion breakup fee if the deal does not go through. No worries for Google though. The company had over $39 billion in cash on its balance sheet at the end of the second quarter.

Well, there are some worries for Google, actually. An unidentified industry insider interviewed by Business Insider today says Google just got its hands on the ''worst'' of the Android manufacturers. Samsung and HTC are the studs of the Android universe. They are expected to ship 83 million and 50 million Android phones this year compared to 20 million for MMI, according to the interview.

Skeptics of the deal see it as a patent grab and speculated that massive lay-offs could be seen in the future. Not to mention, Google has now turned into a competitor of Samsung and HTC, something those two companies probably are not thrilled about.

Motorola Mobility Chart

The recent slide in oil services stocks may have had some believing the sector was down for the count, but in less than 24 hours, news flow proved otherwise. On Sunday evening, National Oilwell Varco (NOV), the world's largest provider of oilfield equipment, announced $1.5 billion in Brazilian contract signings.

Transocean (RIG), the world's largest provider of offshore exploration services, followed that up on Monday with news of its largest deal in four years. Switzerland-based Transocean said it will acquire Norwegian rival Aker Drilling ASA for $1.46 billion in a deal that values the Norwegian company at an almost 100% premium to where the stock closed on Friday.

Aker said it had been actively shopping itself to suitors for several months, but Transocean, owner of the Deepwater Horizon rig, was the most interested, the Norwegian company said. The deal is Transocean's largest since the 2007 buy of GlobalSantaFe. For more news and commentary on the energy sector, sign-up for a free trial of the OilSlick daily newsletter (HERE).

Transocean Chart

Believe it or not, one of the driving forces behind the 213-point gain for the Dow was downtrodden Bank of America (BAC). The largest U.S. bank by assets jumped by nearly 8% after the company announced the sale of its $8.6 billion Canadian credit card portfolio to Canada's TD Bank (TD). BofA also said it is looking to dump its U.K. and Irish credit card portfolios. The value of the Canadian deal was not disclosed.

BofA has been on a BP-esque asset sales binge, parting with $30 billion in assets over the past six quarters. Earlier this summer, Bank of America sold a $1 billion portfolio, or 500,000 accounts, of its credit card portfolio to Regions Financial (RF), according to Reuters. The portfolio being sold to TD Bank has 1.8 million active accounts.

As is often par for the course with BofA, the good news only lasts so long. We are in the midst of second-quarter 13F filing season and after the market closed today, it was revealed that legendary hedge fund manager John Paulson slashed his stake in BofA during the second quarter to 60 million shares by quarter end. That is down from 124 million shares at the end of the first quarter.

Paulson, who made a mint betting against subprime mortgages during the financial crisis, has struggled mightily this year, due in no small part to holdings in financial services like BofA. He also pared his Citigroup (C) stake to 33.5 million shares from 41.3 million.

On the other hand, Fairholme Capital's Bruce Berkowitz boosted his fund's BofA exposure by 7 million shares during the second quarter. That works out to 99.65 million shares. That stake was worth almost $1.1 billion at the end of June, but just $762.3 million at the close today, according to the Wall Street Journal.

Bank of America Chart

Looking at the charts, it looks like support for the S&P 500 held firm at 1120 and Monday's big gain took the index past resistance at 1200. Above 1205, there is plenty of room to run back to 1250. On the downside, if support at 1120 were to fail, that would mean a retest of 1100 and from there 1045 could be an issue.

S&P 500 Chart

The Dow tore through resistance at 11,400 today and did not come all that close to flirting with support at 11,200. The blue-chip has about 120 points of real estate in front of it before it bumps into next resistance at 11,600. Earnings season is all but over, Dow components Home Depot (HD) and Wal-Mart (WMT) report on Tuesday, followed by Hewlett-Packard on Thursday. The key with the Dow in the event of a pullback could be its ability to hold 11,000. If that does not happen, the index could dip even further below 10,800 than it did last week.

Dow Chart

During the recent slide, the Nasdaq found buyers around and just under 2400 and with Monday's move above 2500, that should turn to support. Token resistance looms at 2600 with firmer ceilings at 2700 and 2750. If 2400 were to fail on the downside, 2100 could be the next stopping point.

Nasdaq Chart

The Russell 2000 may have failed at resistance at 700 on Friday, but it cruised through that barricade today, closing at its intraday higher just below 719. That is good for a bounce of almost 70 points in just a few trading days, but if the buying spree continues, that trend will matriculate over to small-caps. Whether or not that is enough to carry the Russell back to and above resistance at 775 remains to be seen. If 650 fails on the downside, 590 could be the next destination.

Russell 2000 Chart

With earnings season winding to a close, this week should be all about headline risk and economic data points. Just as this market has been sensitive to bad news on the way down, any good, or less bad, news could be the impetus for fund managers to start getting back into the game. I am not expecting throngs of good economic data, but another week of declining jobless claims could serve to calm investors' nerves and before that number on Thursday, French Prime Minister Sarkozy and German Chancellor Merkel meet on Tuesday. I would expect anything even slightly resembling positive news out of that get-together to move the market. Color me cautiously optimistic that the S&P 500 can tack on another 20-25 points this week.