It’s not often that a stock suffers technical destruction and repairs itself in just a few weeks. But that is what seems to be happening to professional social media site LinkedIn (NASDAQ: LNKD). And the way it has performed recently suggests it has plenty of gas in the tank.

On April 30, the company issued a warning that Q2 revenue and earnings would fall short of expectations. The next day the stock cratered 19% to smash through its one-year trendline and 200-day moving average on huge volume, which is often the case when a stock purges.

The question on many investors’ minds is, “Is LNKD now on sale?”

In my experience, a stock that makes such a huge break is damaged goods and not a bargain. It can take weeks, months and in some cases years for the market to forgive the company’s transgressions. And that manifests in the charts as a long trading range with little action and low turnover.

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Basically, the trading range allows both bulls and bears to rethink their strategies. Many traders move on to other stocks because there is nothing happening in the fallen.

But when interest is low a few brave souls take note. Smart money may start to look past the recent problems to see if the company is making adjustments. Technical traders will see this in indicators such as on-balance volume or in a sudden breakout from a tight range. Presumably, somebody knew something — or thought they knew something — and picked up some shares.

These signs create more interest and before we know it the stock is on the move again.

LinkedIn seems to have gone through that process in only four weeks’ time. Exactly one month after collapsing, prices moved above their range and volume picked up. It wasn’t by that much relative to the stock’s history, but in hindsight it was fairly clear.

Sometimes these awakenings are false signals. The stock looks good for a short while but then lapses back into its malaise. However, in LNKD’s case, shares held their gains, paused and then broke out to the upside. All in all it was rather bullish technical price action akin to a follow-through day signal.

The theory here is that a stock can rally at any time thanks to bottom fishing and short covering. However, if the stock surges in both price and volume several days into a rally attempt, we know it is real buying coming back in and not just short-term trading. My definition is not quite as rigid as the signal’s discoverer, William O’Neil of Investor’s Business Daily, but it leaves the definition of “surge” to the analyst.

Elsewhere on the chart, the bottom of the trading range occurred right on the trendline drawn from the stock’s all-time low set in late 2011 (not shown). With the breakout from that range, we also have confirmation that this long-term trendline held as support, and that sets a bullish background for a short-term trade.

Given the stock’s volatility over the past year, I would expect it to blow through its major moving averages, which are just above in the $226-$229 range. And overshoot would allow LNKD to test the broken one-year trendline somewhere in the $260-$275 area for a hefty potential gain. The stop would be a return to the old trading range in the low $200s.

Recommended Trade Setup:

— Buy LNKD at the market price
— Set stop-loss at $205
— Set initial price target at $270 for a potential 25% gain in 10 weeks

Note: At over $200 a share, LinkedIn is a pricey stock. But you could risk a smaller dollar amount to potentially make a much bigger percentage return. Using my colleague Jared Levy’s trading criteria, you could risk just $33.50 per share ($3,350 per contract) for the chance to make 124% if LNKD hits my target.

Jared’s strategy has delivered annualized gains of 220%, 508% and even 2,201% in the past three and a half months. He put together a video that explains his two-part strategy in six minutes. I urge you to take a look. You won’t regret it. Access it here.

This article was originally published on ProfitableTrading.com: Chart Predicts Huge Rally in Beaten-Down Social Media Stock