DELAFIELD, Wis. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally. Must Read: Warren Buffett's Top 10 Dividend Stocks This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly. That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news. Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance. If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend. Here are five stocks that could get squeezed much higher if they report positive earnings this week. Must Read: 10 Stocks Billionaire John Paulson Loves Netflix My first earnings short-squeeze play is Internet television network player Netflix , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Netflix to report revenue of $1.48 billion on earnings of 45 cents per share. The current short interest as a percentage of the float for Netflix is pretty high at 8.6%. That means that out of the 59.02 million shares in the tradable float, 5.08 million shares are sold short by the bears. This isn’t a huge short interest, but it's more than enough to spark a decent short-covering rally post-earnings if the bulls get the earnings news they're looking for. From a technical perspective, NFLX is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has recently formed a double bottom chart pattern at $315.54 to $316.85 a share. Following that bottom, shares of NFLX have now started to spike higher and break out above some near-term overhead resistance at $336.14 a share. That breakout is starting to push shares of NFLX within range of triggering another big breakout trade post-earnings. If you're bullish on NFLX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $348.39 a share and then once it clears some more key overhead resistance levels at $352.32 to $358 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.15 million shares. If that breakout kicks off post-earnings, then shares of NFLX will set up to re-test or possibly take out its next major overhead resistance levels at $390 to $395.50 a share. I would simply avoid NFLX or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back those double bottom support levels at $316.85 to $315.54 a share with high volume. If we get that move, then NFLX will set up to re-test or possibly take out its next major support level at its 52-week low of $299.50 a share. Must Read: 11 Stocks Warren Buffett Loves Cree Another potential earnings short-squeeze trade idea is LED, lighting and semiconductor products player Cree , which is set to release its numbers on Tuesday after the market close Wall Street analysts, on average, expect Cree to report revenue $412.12 million on earnings of 22 cents per share. The current short interest as a percentage of the float for Cree is extremely high at 17.9%. That means that out of the 117.05 million shares in the tradable float, 20.98 million shares are sold short by the bears. If the bulls get the earnings news they’re looking for, then shares of CREE could easily soar sharply higher post-earnings as the bears scramble to cover some of their positions. From a technical perspective, CREE is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has recently formed a near-term bottoming chart pattern, with shares finding buying interest after it pulled back to $29.54, $29.25 an $29.21 a share. Shares of CREE are now starting to spike higher off those support levels and it’s quickly moving within range of triggering a big breakout trade above some key near-term overhead resistance levels. If you're in the bull camp on CREE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance at $32.64 to $33.39 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.64 million shares. If that breakout triggers post-earnings, then CREE will set up to re-test or possibly take out its next major overhead resistance levels at $36 to $37.26 a share. Any high-volume move above $37.26 will then give CREE a chance to re-fill some of its previous gap-down-day zone from last October that started near $42 a share. I would simply avoid CREE or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support at $29.21 a share with high volume. If we get that move, then CREE will set up to re-test or possibly take out its next major support level at its 52-week low of. $27.25. Any high-volume move below that level will then put $25 to $20 a share into play for shares of CREE. Must Read: 10 Stocks George Soros Is Buying Kinder Morgan Another potential earnings short-squeeze candidate is midstream energy player Kinder Morgan , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Kinder Morgan to report revenue of $4.30 billion on earnings of 34 cents per share. The current short interest as a percentage of the float for Kinder Morgan is pretty high at 10.6%. That means that out of the 860.89 million shares in the tradable float, 91.28 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.1%, or by about 8.37 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of KMI could easily rip sharply higher post-earnings as the shorts move fast to cover some of their trades. From a technical perspective, KMI is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months and change, with shares moving higher from its low of $32.88 to its recent high of $43.18 a share. During that uptrend, shares of KMI have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of KMI within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels. If you're bullish on KMI, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $42.60 a share to its 52-week high of $43.18 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 24.74 million shares. If that breakout develops post-earnings, then KMI will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $50 to $55 a share. I would avoid KMI or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support at $40.22 a share with high volume. If we get that move, then KMI will set up to re-test or possibly take out its next major support levels at $37.06 to its 200-day moving average of $36.87 a share. Must Read: 10 Stocks Carl Icahn Loves Meridian Bioscience Another earnings short-squeeze prospect is diagnostic test kits player Meridian Bioscience , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Meridian Bioscience to report revenue of $46.30 million on earnings of 19 cents per share. The current short interest as a percentage of the float for Meridian Bioscience is very high at 13.8%. That means that out of 41.15 million shares in the tradable float, 5.70 million shares are sold short by the bears. This is a large short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily send shares of VIVO sharply higher post-earnings as the bears rush to cover some of their short positions. From a technical perspective, VIVO is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways for the last month and change, with shares moving between $15.56 on the downside and $17.40 on the upside. Shares of VIVO are now just starting to spike higher back above its 50-day moving average and it's quickly moving within range of triggering a near-term breakout trade above the upper-end of its recent sideways trading chart pattern. If you're bullish on VIVO, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $17 to $17.40 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 294,697 shares. If that breakout gets set off post-earnings, then VIVO will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $18.66 to $18.77 a share. Any high-volume move above those levels will then give VIVO a chance to tag or take out $20 a share. I would simply avoid VIVO or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 52-week low of $15.56 a share with high volume. If we get that move, then VIVO will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $13 to $12 a share. Must Read: 5 Stocks Warren Buffett Is Selling Janus Capital Group My final earnings short-squeeze play trade idea is asset management player Janus Capital Group , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Janus Capital Group to report revenue of $243.72 million on earnings of 20 cents per share. The current short interest as a percentage of the float for Janus Capital Group is very high at 17.3%. That means that out of the 178.32 million shares in the tradable float, 30.91 million shares are sold short by the bears. If this company can produce the earnings news that the bulls are looking for, then shares of JNS could easily rip sharply higher post-earnings as the bears move fast to cover some of their short positions. From a technical perspective, JNS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last four months and change, with shares moving higher from its low of $12.83 to its recent high of $17.28 a share. During that uptrend, shares of JNS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of JNS within range of triggering a big breakout trade post-earnings. If you're in the bull camp on JNS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high of $17.28 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.58 million shares. If that breakout materializes post-earnings, then JNS will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $25 a share, or even north of $25 a share. I would avoid JNS or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at its 50-day moving average of $15.68 a share to $15.40 a share with high volume. If we get that move, then JNS will set up to re-test or possibly take out its next major support levels at $14.79 to $14.32 a share, or $13.89 to its 200-day moving average of $13.10 a share. -- Written by Roberto Pedone in Delafield, Wis. Must Read: Warren Buffett's Top 10 Dividend Stocks Follow Stockpickr on Twitter and become a fan on Facebook. At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at http://ift.tt/19UMVdH or @zerosum24.
Click to view a price quote on NFLX. Click to research the Specialty Retail industry.
from Latest TSC Headlines http://ift.tt/1xQmznU
No comments:
Post a Comment