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. Must Read: 10 Stocks Billionaire John Paulson Loves United States Steel My first earnings short-squeeze trade idea is major steel player United States Steel , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect United States Steel to report revenue of $3.96 billion on earnings of 87 cents per share. The current short interest as a percentage of the float for United States Steel is extremely high at 26.3%. That means that out of the 144.45 million shares in the tradable float, 37.98 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of X could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions. From a technical perspective, X is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares plunging lower from its high of $42.19 to its new 52-week low of $20.55 a share. During that downtrend, shares of X have been consistently making lower highs and lower lows, which is bearish technical price action. That move has now pushed shares of X into oversold territory, since its current relative strength index reading is 25.50. Oversold can always get more oversold, but it's also an area where a stock can experience a powerful bounce higher from. If you're bullish on X, 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 $22.91 to $23 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 7.46 million shares. If that breakout triggers post-earnings, then shares of X will set up to re-test or possibly take out its next major overhead resistance levels at $26 to $28, or even over $30 a share. I would simply avoid X or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $20.55 a share with high volume. If we get that move, then X will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $18 to $16 a share. Must Read: 11 Stocks Warren Buffett Loves Abiomed Another potential earnings short-squeeze play is medical devices player Abiomed , which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Abiomed to report revenue $53.19 million on earnings of 4 cents per share. The current short interest as a percentage of the float for Abiomed is pretty high at 11.6%. That means that out of the 33.78 million shares in the tradable float, 3.93 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of ABMD could easily rip sharply higher post-earnings as the bears rush to cover some of their bets. From a technical perspective, ABMD is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending very strong for the last four months, with shares moving higher from its low of $21.84 to its recent high of $40.44 a share. During that uptrend, shares of ABMD have been consistently making higher lows and higher highs, which is bullish technical price action. That strong uptrend is now pushing shares of ABMD within range off triggering a near-term breakout trade post-earnings. If you're in the bull camp on ABMD, 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 $40.44 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 397,605 shares. If that breakout hits post-earnings, then ABMD 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, or even $60 a share. I would simply avoid ABMD or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $36.66 a share and then below more key support levels at $35.75 to $34 a share with high volume. If we get that move, then ABMD will set up to re-test or possibly take out its next major support levels at $30 to its 200-day moving average of $27.62 a share. Must Read: 10 Stocks George Soros Is Buying AK Steel Another potential earnings short-squeeze candidate is steel and iron player AK Steel , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect AK Steel to report revenue of $1.99 billion on earnings of 7 cents per share. The current short interest as a percentage of the float for AK Steel is extremely high at 26.5%. That means that out of the 174.41 million shares in the tradable float, 46.27 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.4%, or by about 1.07 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of AKS could easily soar sharply higher post-earnings as the bears move fast to cover some of their trades. From a technical perspective, AKS is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last six months, with shares moving lower from over $11 a share to its new 52-week low of $3.83 share. During that downtrend, shares of AKS have been making mostly lower highs and lower lows, which is bearish technical price action. That move has now pushed shares of AKS into oversold territory, since its current relative strength index reading is 30. Oversold can always get more oversold, but it's also an area where a stock can experience a powerful rebound higher from. If you're bullish on AKS, 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 $4.13 to $4.25 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 11.66 million shares. If that breakout gets started post-earnings, then AKS will set up to re-test or possibly take out its next major overhead resistance levels at $4.75 to $5.25 a share, or even its 50-day moving average of $5.54 to $6 a share. I would avoid AKS or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $3.83 a share with high volume. If we get that move, then AKS will set up to re-test or possibly take out its next major support levels at $3.50 to $3 a share, or even $2.75 a share. Must Read: 10 Stocks Carl Icahn Loves Freescale Semiconductor Another earnings short-squeeze prospect is semiconductor player Freescale Semiconductor , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Freescale Semiconductor to report revenue of $1.10 billion on earnings of 33 cents per share. The current short interest as a percentage of the float for Freescale Semiconductor is extremely high at 19%. That means that out of 107.10 million shares in the tradable float, 30.39 million shares are sold short by the bears. This is a large short interest on a stock with a reasonably low tradable float. Any bullish earnings news could easily spark a decent short-covering really for shares of FSL post-earnings as the bears move fast to cover some of their short positions. From a technical perspective, FSL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending very strong for the last four months, with shares moving higher from its low of $15.29 to its new 52-week high of $27.28 a share. During that uptrend, shares of FSL have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FSL within range of triggering a near-term breakout trade above some key overhead resistance levels. If you're bullish on FSL, 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 $27 to its 52-week high of $27.28 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 2.44 million shares. If that breakout develops post-earnings, then FSL will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $35 to $40 a share. I would simply avoid FSL 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 $25.25 to $24 a share and then below its 50-day moving average of $23.79 to more support at $23.66 a share with high volume. If we get that move, then FSL will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $21.98 to $20 a share, or even $19 a share. Must Read: 5 Stocks Warren Buffett Is Selling VMware My final earnings short-squeeze play is virtualization infrastructure solutions provider VMware , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect VMware to report revenue of $1.69 billion on earnings of $1.07 per share. The current short interest as a percentage of the float for VMware is very high at 13.9%. That means that out of the 80.15 million shares in the tradable float, 11.17 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 VMW could easily surge sharply higher post-earnings as the bears move quickly to cover some of their trades. From a technical perspective, VMW is currently trading just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $75.85 and then $77.01 a share. Following that bottom, shares of VMW have now started to spike higher back above its 50-day moving average of $82.54 a share. That move is now quickly pushing shares of VMW within range of triggering a near-term breakout trade above some key overhead resistance levels post-earnings. If you're in the bull camp on VMW, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $85.27 to $89 a share and then above its 200-day moving average of $91.85 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.66 million shares. If that breakout materializes post-earnings, then VMW will set up to re-test or possibly take out its next major overhead resistance levels at $95 to $98 a share, or even $100 to $105 a share. I would avoid VMW 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 just below $80 a share with high volume. If we get that move, then VMW will set up to re-test or possibly take out its next major support levels at $77.01 to $75.85 a share, or even $70 to $65 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.
Click to view a price quote on X. Click to research the Metals & Mining industry.
from Latest TSC Headlines http://ift.tt/1yl9DXy
No comments:
Post a Comment