Lumber Liquidators Holdings Inc. (NYSE: LL) has been on a roller-coaster ride for practically all of March. Shares of the flooring giant were crushed after a report from the CBS news show “60 Minutes” that alleged the company’s products contained a high level of formaldehyde, a known carcinogen. The stock was cut in more than half, but now we have seen a snap-back rally of about 30% since the bottom.

24/7 Wall St. is evaluating this objectively to see if the stock’s rally is too much from the recent bottom or if this is just the start of something much larger.

Shares initially fell in Monday’s trading session 16.1% to close at $27.95, after hitting a 52-week low earlier in the day. Following this, shares rallied massively on Tuesday, Wednesday and Thursday gaining a total of 31% from Monday’s close up to current prices near $36.65.

The stock’s gain is tied to the company defending itself and also to activist investor Robert Chapman having taken a long position in the stock. Chapman runs Chapman Capital. As reported on CNBC, his position makes up about 15% of his fund, Chapman Capital, and is partly comprised of call options.

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Lumber Liquidators CEO, Rob Lynch, called into CNBC Thursday morning and emphasized that formaldehyde is a well-understood chemical that regularly exists, even in normal indoor air. The company will be further defending itself on Friday in a CNBC interview. Needless to say, the company will be aggressively calling out the short sellers in their further defense.

So, what would a pure technician (chartist) have to say about the future of Lumber Liquidators?

Here is what you need to know about the chart (see below). If a pure market technician were to look at this chart, without knowing the news nor caring why it has acted the way it has, he or she would tell you that the best days for this stock are in the past. They may say even worse things. Technicians would note that a gap-down from above $70 down to $55 last summer to be followed by a return to $70 before cratering to nearly three-year lows is a very bad chart.

If you think logically about this chart, it explains what technicians are thinking about that very key $70 pivot point. That $70 handle represents the level where everyone who bought since last summer had a profit, and anyone who owned it who wished they sold before last summer’s drop can do so again.

Now imagine what happens if or when Lumber Liquidators stock rallies again. At $50, it gets back to the mid-2014 to recent trading band, which generally means overhang or resistance. Anyhow, hopefully you get the idea here.

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Shares of Lumber Liquidators were up again about 13% at $36.91 on Thursday afternoon. The stock has a consensus analyst price target of $55.30 and a 52-week trading range of $27.79 to $108.40.

 

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