A rough week for economic news left traders in a selling mood, putting the major market indices in bear market territory. The Dow ($INDU) gave up 322.59 points, or 2.79 percent, to close at 11,220.96. The S&P 500 ($SPX) lost 40.52 points, or 3.16 percent, to 1,242.31. The Nasdaq ($COMPQ) declined 111.64 points, or 4.72 percent, to 2,255.88.  

Economic news was heavy this past week and the overall impact was selling. The week ended with an employment report that raised concerns about economic growth heading into 2009. Nonfarm payrolls fell by 84,000 in August, making it eight consecutive months of declines. However, the most disappointing news was the sharp rise in the unemployment rate to 6.1 percent from 5.7 percent. Economic data will be lighter this coming week, although Thursday and Friday will be the heavy sessions. Financials are sure to get plenty of attention with reports that the government will bail out Fannie Mae (FNM) and Freddie Mac (FRE).

With concerns about the state of the economy and the “R” word being brought up once again; fear picked up during the week. The CBOE Market Volatility Index ($VIX) gained 11.67 percent to 23.06 with the Nasdaq Volatility Index ($VXN) up 10.99 percent to 26.66. During the week, the SPX moved below 1,260, which marks a 20 percent decline from the years high. The same occurred for the Naz, which moved below 2,290, its official bear market point. The Dow also sits in bear market territory below 11,358 by 120 points.

High Volatility: FCX shares have seen weakness the past few weeks with the copper company seeing its shares fall to support near $70 last week. Just three months ago the stock was trading near $125 a share. On Friday, FCX bounced off support on strong volume to close the session at $73.91. This chart pattern often foretells of higher prices, but the stock might find it tough moving through the $90 area. The stock had a bearish gap near $90 and once filled, it could see some profit taking. The fact is that IV is high on the stock, but the most likely move looks up. We can enter a bullish butterfly trade on FCX using a 70-80-90 butterfly that would create a trade with about $792 in possible reward with a max risk of $208

Low Volatility: JASO shares are sitting near support at $14, closing Friday’s session at $15.54. The stock bounced off support, which has held on several occasions in the past few months. IV is very low on the stock’s options and the stock could see a bounce to $18 if not higher. There is an interest in solar energy at the moment given worries about crude prices. The stock did gain nearly six percent on Friday, so some profit taking could occur Monday, but any decline in price might be a good time to enter a bullish strategy, possibly just a regular old call purchase.

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