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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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