Sideways trading continues for the major market indices, but the bulls did manage strong gains this past week. The Dow (DJI) added 326.72, or 3.24 percent, to close the week at 10,424.62. The S&P 500 (SPX) gained 37.78 points, or 3.55 percent, to 1,102.66. The Nasdaq (COMP) tacked on 90.42 points, or 4.15 percent, to 2,269.47.

The Dow bounced off 10K this past week and was able to close above both its 50-day and 200-day moving averages. The Naz also closed above these two important moving averages. However, the SPX failed to breach its 200-day moving average, but did close the week above 1,100. A number of strong earnings reports benefited stocks during the week, although comments from Fed Chairman Bernanke did create selling on Wednesday.

The fear indices fell in step with the gains in the major market indices.  The CBOE Market Volatility Index (VIX) gave up 10.59 percent to 23.47 with the Nasdaq Volatility Index (VXN) down 10.09 percent to 24.16. These indices have their next support level at their respective 200-day moving averages. Last time this support level was hit, it led to a sell-off, so this area is important to watch this week. Both the VIX and VXN are at a key juncture, closing right at resistance at their respective 200-day moving averages.

High Volatility:  MNTA shares soared on Friday, jumping 81.89 percent to $21.70 on the session. The stock benefited from news the FDA had approved a drug in a joint venture with Sandoz. The new drug is a generic for Lovenox, which is marketed by Sanofi-Aventis (SNY). After such a large move, we could easily see the stock sell off as trades take profits. This being the case and with IV very high on the shares, traders might want to look at a bear call spread. This strategy does have some risk, but it is limited to the difference in strike prices used, but excludes the premium brought in to enter the spread.

Low Volatility: Shares of GDX have been trading in a range for about three months now with the median price at $50. The ETF closed Friday’s session at $49.21 and though we would like to see higher IV when entering a butterfly, GDX is still a good candidate for this strategy. This is also the where the 50-day moving average resides with the 200-day moving average acting as support. This is an ETF, so earnings are not an issue directly for the security, giving us better odds of GDX staying in its trading range.

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