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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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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