Trader predicts that an infamous stock is due for a bounce

After rallying more than 40 percent this year, shares have Lumber Liquidators may have found — well, a bit of a floor.

"Here's a stock that this is coming out of a two-year base, and its breakout at $20 is now support," Ari Wald, head of technical analysis at Oppenheimer, said Monday on CNBC's "Trading Nation."

This could suggest "that a lot of that bad news has already been priced in," he added.

It had been alleged that the company's China-manufactured products contained high levels of formaldehyde, which could increase risk of cancer and other problems.

Recently, better-than-expected earnings have sent the stock higher — but the Wall Street community remains firmly entrenched in wait-and-see mode. According to FactSet data, not a single research analyst has a buy rating on the stock; 11 rate it hold, and one is at sell.

In a Monday report, Credit Suisse analyst Seth Sigman cut his price target on the now-$22.30 stock to $22 from $32, while maintaining a neutral rating. "Key risks remain the remaining legal issues and a higher cost of doing business," Sigman wrote.

Yet "just from a charting perspective, you have a nice little base and breakout to work with here," Wald said.

The technical analyst would suggest buying the stock "as close to $20 as possible," and added that "on the upside, I think you could see just a little short-covering trade into the mid- to upper-20s."

While such a move might be nice for those who buy now, it would be cold comfort for long-term holders. In November 2013, the stock reached as high as $119.98.

Roughly a quarter of the floating shares of the stock are currently held short, according to FactSet data.


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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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