After two disastrous years in 2014 and 2015, Lumber Liquidators Holdings Inc (NYSE: LL) finally seemed to find its footing in the second half of 2016. Unfortunately for Lumber Liquidator bulls, the stock finished the year by forming a typically bearish technical chart pattern that suggests the Lumber Liquidators recovery may be at risk of a setback in early 2017.
After a more than two-year plummet from an all-time high of $119.98 in late 2013 to a multi-year low of $10.01 in early 2016, Lumber Liquidators stock bounced as high as $20.10 in September. The timing of the bounce was certainly no coincidence. Lumber Liquidators was cleared by the Consumer Product Safety Commission this year following a probe related to formaldehyde levels in the company’s products. The company also settled multiple lawsuits related to product safety, including a $16.8 million settlement with investors.
The bad news for bulls is that Lumber Liquidators recent bounce may have hit a technical ceiling. Lumber Liquidators seemed to be on the right track when it made a series of three higher peaks in April ($16.25), July ($17.99) and October ($20.10), but the Lumber Liquidators rally appears to have stalled in the final two months of the year. The stock’s November high of $18.57 failed to eclipse its October high of $20.10 and may have formed the first “lower high” of a new downtrend.
The potential right shoulder of the head and shoulders pattern is roughly in-line with the $18 peaks in July and August that form the left shoulder on the chart.
Lumber Liquidators traders will be watching the stock closely in the opening weeks of 2017 for signs of a breakout that could indicate where the stock is headed next. There are several key potential support and resistance levels to focus on.
The potential support levels are indicated by the green lines in the chart. The best possible scenario for bulls is that the stock will bounce off of the positive-sloping support line that has been in place since March and now sits at about $15.50. The stock may find added support at that level from the 200-day simple moving average as well.
Below $15.50, the stock found support in the $14 region in July and November and could find buyers there again for a third time. A breakdown below $14 would likely mean a re-test of March lows in the $10-11 range.
On the other hand, a move above $18 would potentially eliminate the head and shoulders pattern, and a move above $20 would put Lumber Liquidators right back in its nearly year-long uptrend.
Disclosure: the author holds no position in the stocks mentioned.
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