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Disappointing economic data leaves traders in a selling mood, ending a two-week winning streak. The Dow ($INDU) lost 155.01 points, or 1.58 percent, to close the week at 9,665.19. The S&P 500 ($SPX) declined 23.92 points, or 2.24 percent, to 1,044.38. The Nasdaq ($COMPQ) gave up 41.94 points, or 1.97 percent, to 2,090.92.

The major market indices are still up sharply for the quarter with all three seeing gains of at least 13.6 percent. The Naz continues to lead the way in 2009, up a stellar 32.59 percent, more than double that of the SPX and triple that of the Dow. Profit taking took place this past week with disappointing data on existing and new home sales accompanied by a durable orders report that fell short of expectations. The selling started a little after the release of the FOMC statement on Wednesday. The Fed was optimistic about the future, but this left traders concerned about an end to stimulus.

Fear did increase as stocks fell, although both the VIX and VXN are still well below prior highs. The CBOE Market Volatility Index ($VIX) added 7.07 percent to 25.61 while the Nasdaq Volatility Index ($VXN) gained 4.37 percent to 25.77. These fear indices have shown consolidation for the past few months near 25, but are still well above their historic norm below 20. However, we were seeing levels above 70 not that long ago. At current prices, it is hard to get a good read on the fear found in the stock market, but this doesn't mean there aren't some extremes being seen in individual equities.

High Volatility: LEAP shares have been rather volatile in 2009, not unlike many technology stocks. The stock has a 52-week range from $14.18 to $43.38, closing Friday's session at $20.27. After finding support near $15, the stock has moved up to resistance at its 50-day moving average near $20. With implied volatility high on the stock's options, traders might want to look at a butterfly strategy to take advantage of further sideways movement. The company announced earnings back in early August, lowering its guidance for the year. This has left the stock in a sideways pattern that could continue until its next earnings release in November.

Low Volatility: KBH shares broke below their 50-day moving average on Friday, thanks to some disappointing data on existing and new home sales in August. The company also announced earnings that showed some improvement from recent reports, but that remain well below results from the year ago period. KBH shares closed Friday's session at $16.96, a loss of 8.52 percent. The stock has a 52-week range from $6.90 to $21.73, but the stock could easily continue its decline to support at its 200-day moving average below $15. Traders might want to look for a bounce Monday to possibly enter bearish strategies on a move to support.

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

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