The major market indices fell for the sixth consecutive week, yet the fear indices are showing only small gains. The Dow ($INDU) gave up 188.00 points, or 1.67 percent, to close at 11,100.54. The S&P 500 ($SPX) lost 23.41 points, or 1.85 percent, to 1,239.49. The Nasdaq ($COMPQ) declined 6.30 points to 2,239.08. All three indices remain in bear market territory, which is a decline of 20 percent from previous highs.

Second quarter earnings season officially kicked off last week with Alcoa (AA) reporting. Though the company’s earnings were better than expected, the stock struggled to find gains. This coming week will be full of key earnings reports and the outlooks from these firms will likely have the largest impact on stock prices. The economy will remain a focus as well, especially with Fed Chairman Bernanke set to testify before the Senate Banking Committee and House Financial Services Committee.

Traders are looking for a bottom in the stock market, but the fear indices have not spike to levels normally accompanying a bottom. The CBOE Market Volatility Index ($VIX) rose 10.89 percent this past week to a level of 27.49. The Nasdaq Volatility Index ($VXN) was up just 1.98 percent to 30.45. Back in January and March, the VIX spiked to a level near 35 with the VXN hitting highs at above 37. Usually, it takes some capitulation, which includes a spike in fear, before a bottom can start to form.

High Volatility: GS shares have shown a lot of volatility along with the entire financial sector. However, the stock has been finding some support near the $160 level. With IV high for the financial giant’s options, traders could look at using a butterfly to profit from some consolidation in GS shares. The stock bounced off $160 on Friday, closing the session at $162.48. the 50-day moving average sits overhead at $180, so using a 160-170-180 butterfly might provided the best reward to risk ratio. In fact, this trade currently offers a possible profit of $830 with a max risk of just $170.

Low Volatility: Volume has been picking up for CHU this past week while the stock has moved higher. In fact, the stocks only losing session this past week was accompanied by its lowest volume level. However, CHU is running into resistance at its 50-day moving average at $20. Nonetheless, if the stock can break through this level, it could find the strength to move sharply higher. CHU has a 52-week range from $13.71 to $25.13. With IV low on CHU options, buying a straight call might be a wise choice. However, those concerned about extra risk might want to wait for resistance to be broken.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

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