An earnings short-squeeze play in the gold and silver sector is Royal Gold (RGLD), which is set to release numbers on Thursday before the market opens. This company, together with its subsidiaries, is engaged in the business of acquiring and managing precious metals royalties and similar interests derived from production. Wall Street analysts, on average, expect Royal Gold to report revenue of $59.35 million on earnings of 40 cents per share.
It's not hard to understand why shares of Royal Gold are currently trading just 4 points off of its 52-week high at $70.86 a share. The price of gold bullion has been red-hot to see the least, and this gold miner is one of the strongest acting names in the sector. In fact, as I write this, gold has just hit a new all-time higher over 1,779 an ounce. This should setup Royal Gold for a strong quarter, so all the bulls are going to need to take this one higher is for management to issue bullish guidance.The current short interest as a percentage of the float for Royal Gold is a notable 7.2%. That means that out of the 51.42 million shares in the tradable float, 3.7 million are sold short by the bears. It's worth pointing out that the bears have also been increasing their bets from the last reporting period by 11%, or by about 368,000 shares. If the bears are caught leaning the wrong way on this gold player, then we could easily see a large short squeeze since the tradable float is pretty small. From a technical standpoint, shares of Royal Gold are looking very bullish, with the stock trending above both its 50-day and 200-day moving averages. The stock has also just found some big buying support and formed a double-bottom chart pattern at $63.30 a share. The way I would play this stock would be to simply buy some shares after the report if Royald Gold triggers a big breakout above some past overhead resistance at $70.68 a share on heavy volume. A move above that level would put Royal Gold at a new 52-week high, and that will likely bring in lots of momentum traders. New highs will also scare the shorts since it will mean there's little resistance left to hold the stock back. I would only short this stock if it moves below $63.30 after the report on big volume. Add to any short position if the stock then takes out its 50-day moving average of $61.52 a share with strong volume. Since this name is looking so strong technically, and the fundamental backdrop is bullish, it might be another play worth buying some near-the-money call options ahead of the report. Just remember, only a breakout is going to make those calls valuable, so if it doesn't happen the calls won't work.
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