Although next week begins the decline in the number of earnings reports, the drop-off is minor. Around 100 S&P 500 companies are on the schedule, with 30 of those coming on Thursday alone. Real estate, transportation, and energy companies dominate the docket, although there’s plenty to go around for most every sector. Investors should look for options trading information.

One company that’s caught our eye is Dow Chemical (NYSE: DOW), which reports before the open next Thursday (Feb. 3).  Analysts expect a nearly 90% increase in earnings from a year ago. That may sound daunting, but the figure pales compared to the growth seen in the past four quarters. The whisper number is a couple of cents higher than the analyst estimate, but that’s been the case for the past several quarters. The bottom line is that we’re not seeing anything extreme in terms of expectations.

After being hit hard by the global recession, the overall chemical industry is on the road back. Combined with sweeping cost-cutting measures enacted while demand waned, this recovery bodes well for industry-wide bottom lines. This showed up in rival duPont’s (NYSE: DD) numbers this week. The company handily beat on both the top and bottom lines and raised its 2011 outlook.

DOW has been on a solid run for the past five months, gaining more than 50% along the support of its 10-day and 20-day moving averages. The stock has bounced back from a sharp decline last week, and is now poised to take out its high from last week to reach territory last seen in September 2008.

Dow Chemical

DOW’s sentiment backdrop is a prime reason we like the stock’s prospects, as pessimism is evident in several indicators. The put/call ratio is coming off a peak, short interest is at a multi-year high, and just seven of 17 analysts consider DOW a “buy.” Clearly we’re seeing plenty of skepticism that can unwind into buying pressure, especially if DOW’s earnings follow DuPont’s lead by reflecting a continued recovery in the industry.

We don’t expect a big pop after earnings based on the stock’s recent post-report price action. But we are looking for earnings to confirm the industry’s recovery and for the shares to move past last week’s high. We like DOW’s longer-term prospects, so let’s go out another month for our option play to capture the price activity for the next couple of months.

Buy the near-the-money DOW March 35 Call for less than two bucks.