So Bad It's Good: Furniture Brands International Ready to Rebound (FBN)

Have you ever looked back after a stock's rebounded and realized you missed the obvious hints that the bottom had been made (and you missed out)? Yeah, well, I suspect a bunch of traders are going to look back at Furniture Brands International, Inc. (NYSE:FBN) a few weeks from now and realize right now - as in today - is when FBN made a major bottom and began a bullish reversal.

That's my clever way of saying Furniture Brands International is a 'buy' now.

The clues leading me to that conclusion are two-fold. The first one is the blowout plunge from yesterday that unfurled on huge volume. FBN was already in a freefall, but things went from bad to worse on Tuesday with the stock's 38% plunge on massive volume. It's the pop in volume that really underscores the "blowout-ness" of the move. This looks like a final flushout of any weak-handed holders. In other words, it was a capitulation, leaving nobody behind but the buyers.

The second clue prodding my bullishness on Furniture Brands International, Inc. is today's bar. It's another high volume session, but this time, the stock's barely moved; both the open and the close (so far) are right in the middle of the day's high-low range. That's called a doji, and indicates indecision that's often seen at a major transition. In this case, the only transition possible is one from a bearish trend into a bullish one. The strong volume for FBN today along with the non-movement also says there's a lot of buying and selling here as the last of the sellers file out, but are matched by the same number of new buyers filing in.

Translation: The stock's at the pivot point between a net-bearish environment and a net-bullish one.

Great, but what caused the plunge in the first place, and is it going to be a problem going forward?

The killer was earnings, announced Tuesday morning. They weren't awful, but they were disappointing. The knee-jerk response was the expected bearish one; FBN took a hit. The thing is, the worst of the earnings news had likely already been baked in. Remember, Furniture Brands International, Inc. shares had been falling for several weeks leading up to Q2's earnings announcement. Traders saw it coming. A handful of observers jumped on the bearish bandwagon when the assumption became reality, but most of the selling that was going to happen based on earnings had already happened by that point. From here, only the buyers are left.

It admittedly feels awkward to try and catch a falling knife like Furniture Brands International has been of late. But, in trading, the spoils belong to the risk-takers.

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