Shorts Coming Out Of The Woods To Cover In Lumber Liquidators

Joel Elconin is the co-host of Benzinga's #PreMarket Prep, a daily trading idea radio show.

Lumber Liquidators Holdings Inc LL shares were trading higher by $1.04 (8 percent) at $13.10 in Monday's session. With no relevant news out on the issue, let's examine the technicals for a possible explanation for this explosive rally.

It was only three days ago when the issue reached a six-year low at $11.62 after following through on miserable Q2 results, as well as a comparable stores sales decrease of 10 percent the previous day. Over the two-day period, the issue fell from $18.36 to $12.12.

After a quiet day on Friday, it posted its low close for the down move at $12.06. When the issue managed to hold the $12 level, some of the 33 percent short float interest decided to cash in. After all, the issue has come down from its $69.99 peak in February just before "60 Minutes" aired an extremely negative piece on its laminate flooring produced in China.

So far, it has rallied to $13.25 and is not trading far from that level. That level coincides with its close on August 5, the day after the disappointing Q2 report was released.

If the rally continues over the next few days, there may not be much resistance between the intra-day high and the high way up at $16.89. That level represents the high from the volatile August 5 session, where it opened at $14.56, ran to $16.89, crashed to $13.12 and ended the session at $13.27.