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Earnings announcements were abundant this last week and were strong enough to keep the bulls happy. The Dow ($INDU) gained.130.97 points, or 1.33 percent, to close the week at 9,995.91. The S&P 500 ($SPX) added 16.19 points, or 1.51 percent, to 1,087.68. The Nasdaq ($COMPQ) tacked on 17.52 points, or 0.82 percent, to 2,156.80. Though the major market indices saw gains, they did come off their intraweek highs when the Dow traded above 10K.

Earnings news continued to be better than expected, though some stocks saw declines from a "sell the news" mentality. Several tech stocks reported strong results, including Google (GOOG), Intel (INTC) and IBM (IBM), but the tech sector underperformed on the week. Bank stocks easily beat earnings expectations, but traders remain concerned about bad loans. Economic news was a positive for stocks as well with retail sales, jobless claims and industrial production better than expected. Earnings will continue to be heavy this coming week with economic data focused on housing.

For the second straight week, the fear indices saw large declines, leaving them at 52-week lows. The CBOE Market Volatility Index ($VIX) fell 7.31 percent to 21.43 while the Nasdaq Volatility Index ($VXN) lost 8.11 percent to 22.22. Historically, the 20 level has been a point key support and resistance. We will have to see if this area once again is a key point with the most likely results a bounce near the 20 level. The fact is that the beginning of third quarter earnings season has been very strong, but this raises expectations for upcoming results, which could be hard to meet.

High Volatility: IV is high for DRIV options at the moment with the stock set to report earnings later this month. However, the company provided guidance last week that sent the shares to the $25 level with the stock closing Friday at $24.79. The stock has been consolidating near this level since its announcement and this could continue even through the company's earnings release. When earnings are announced, IV will likely return to a more normal value, so now could be a great time to enter a butterfly on DRIV. A butterfly can be set up using the Nov. options that would profit as long as DRIV closes between $22.20 and $27.81 at expiration.

Low Volatility: INTC shares were heavily traded last week with the chip giant reporting earnings on Tuesday. The stock jumped the session following its announcement at the open, but then traded lower the rest of the week. This was a result of the strong gains seen in the stock ahead of its report and since the March low. INTC was trading near $12 back in March, closing Friday's session at $20.18. INTC could continue to see some selling as it approaches support at its 50-day moving average, but this might be a good time to enter bullish trades on a longer term basis to benefit from the economic recovery. Intel is a leader in the technology space and the stock should rise as the economy continues its turnaround.

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

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