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.
With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.
My first earnings short-squeeze trade idea is consumer goods player Advanced Drainage Systems (WMS) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Advanced Drainage Systems to report revenue of $136.60 million.
The current short interest as a percentage of the float for Advanced Drainage Systems is pretty high at 15.5%. That means that out of the 33.94 million shares in the tradable float, 5.29 million shares are sold short by the bears.
From a technical perspective, Advanced Drainage Systems is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $22.64 to $22.73 a share over the last month. Following that potential bottom, shares of Advanced Drainage Systems have now started to spike higher and move within range of triggering a big breakout trade post-earnings.
Another potential earnings short-squeeze play is lighting solutions and services player Acuity Brands (AYI) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Acuity Brands to report revenue $575.38 million.
The current short interest as a percentage of the float for Acuity Brands sits at 4.2%. That means that out of the 43.05 million shares in the tradable float, 1.83 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.2%, or by about 57,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.
From a technical perspective, Acuity Brands is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $254.31 to $252.27 a share over the last month. Following that potential bottom, shares of Acuity Brands have now started to trend a bit higher and move within range of triggering a big breakout trade post-earnings.
If you're in the bull camp on Acuity Brands, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $261.73 a share and above more resistance at $267.08 to its 50-day moving average of $267.46 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 254,742 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $280.89 a share to $290, or even $295 to $300 a share.
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