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By day’s end and very much like last week, Wednesday marked another sour session for directional bulls, while scoring yet another game winner for volatility bulls. In fact, with steep losses in excess of 9% for the S&P500 ($SPX), the ringing of the bell likely felt like a CNBC “We Know Drama--Closing Hell” experience.

The good news for those that realize bottoms aren’t typically “V”-shaped and currently fixated on the historic bounce being nothing more than the mother of all bear market rallies—is conditions have continued to work favorably for an actual bottom to be established. Of course, there are never any guarantees with Mr. Market other than the Opening Bell and occasional Closing Hell. However, the current situation is making a very good case for a major market bottom.

What did you think—we’d just rally 25% and peel off 1% or 2% on gentle volume? Apparently more than a few bulls did get caught in that type of over-optimistic and unlikely outcome. For those willing to accept the current price malaise as something closer to what should have been expected; there remains technical hope.

With the round turn of the last two sessions, prices have retraced slightly more than 62% of the knife-riddled bottom-feeding, which turned a wee bit too ambitious. In the here and now, with that same deep pullback remaining above the “Mama Bottom” lows of Friday, fear levels percolating once more and a FTD or follow-through day count at either day four or five entering Thursday’s session; I’d like to look at a couple of the market’s tea leaves and determine if tonight’s closing hell could be tomorrow’s “Mooyah!” or sometime very soon.  

Figure 1: S&P500 ($SPX) Daily Extreme

The intermediate-based follow-through day for the S&P500 is set at day four entering Thursday’s session. The technical count began the first positive close after a major low had been established. As folks fully realize, that “Mama Bottom” low came on Friday. However, the failure to finish in positive territory that session meant Monday’s generous rally became the start of the count and what’s referred to as the rally attempt.

A confirmation of the FTD doesn’t necessarily mean a rally will take hold. However, according to the market analysts at IBD, all intermediate bottoms have had a FTD occur. Typically, the higher volume percentage thrust necessary to confirm the FTD comes between day’s four and seven, but the proverbial wiggle room of a day or two, has been allowed on occasion. That being said and what’s already been said about this most vicious of market corrections—“FTD anyone?”

Figure 2: Fuel System Solutions (FSYS) Weekly

Readers may want to keep tabs on KBR (KBR) and Alleghany (ATI) as the weekly and monthly tea leaves discussed prior, still make about as much sense as they did ‘way back then’, all things considered. The former is a current “fav” of Dr. Cramer’s (9/29), while the latter was his “Stock of the Year 2006.”

Looking above is another somewhat common technical shellacking that’s taken shape in Fuel System Solutions (FSYS). Somewhat different, after a bit of homework and mulling things over, FSYS does look a bit more interesting than the other nine out of ten currently in play.

Fuel Systems has that certain something called “earnings growth” and all-around decent numbers for a potential up and comer. However, if this doom and gloom thingamajiggy really takes hold and folks start pedaling or walking to work, expect, along with all those touted value plays—to begin looking a bit less attractive.

Admittedly, the options in Fuel System Solutions could use a bit of that certain something called liquidity. Caveats in place, the stock is taking shape as a first stage corrective weekly base. The pattern, based off a “double bottom” test of prior five-year highs is the type which, at higher levels, would attract the momentum and growth crowd—back into “business as unusual.”

For Elliott Wave enthusiasts or those that just strive to position closer to supports during the lean times, the current situation in FSYS may be appealing enough to put together a spread with bullish intentions. Remember as well, to use a limit order and price that one can live with; that way you’re not simply writing a check directly to FSYS’ illiquidity providers.

Figure 3: Terex Monthly (TEX)

And finally, from daily to weekly, let’s finish off with a monthly perspective. Terex (TEX), a manufacturer of farm and infrastructure machinery, has been digging deep holes for shareholders due to general economic calamities still fully unrealized, but very much being discounted on the tea leaves.

In the case of Terex, shares have swooned by roughly 82%, making it somewhat of a technical leader for bears and much to the chagrin of bulls. However, that same action has become severe enough as to embrace a potential end to those fearful ways and the allowance for hope to enter the picture.

Technically, a fib-based two-step pattern (AB = CD) is underway between a 100% - 138% extension. The price action is also hitting prior all-time-highs, stretched outside its monthly Bollinger and testing a 200-month moving average. And finally and without shoveling too deep for any bull, the RSI is just hitting oversold territory. “MOOyah anyone?”

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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