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5 Heavily Shorted Stocks That Could Pop on Earnings

Qihoo 360 Technology

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Another stock with the potential to squeeze the bears off their earnings report is Qihoo 360 Technology (QIHU), which is set to release results on Wednesday after the market close. Qihoo is engaged in the operations of Internet services and sales of third-party anti-virus software in the People's Republic of China. Wall Street analysts, on average, expect Qihoo 360 Technology to report revenue of $29.12 million on earnings of 6 cents per share.

This company offers a mix of Internet services. First, it's the leading anti-virus firm in China, with 238 million monthly active users, which totals a virus-user penetration rate of 83.9% in the country. The company also sells a Web browser, 360Safe, which is second in total usage at 19% of market share. Qihoo 360 also has a popular Web game portal and a group-buying platform, and it offers cloud-computing services and security products for the iPhone and Android devices.

The current short interest as a percentage of the float for Qihoo 360 is just over 5%. That means that out of the 68.45 million shares in the tradable float, 3.66 million are sold short by the bears.

From a technical standpoint, this stock is trading above its 50-day moving average, which is bullish. The stock has near-term support at around $22 a share and overhead resistance at $23.50 to $24 a share. The stock is also trending below a key descending trend line. Until that trend line is breached to the upside, this stock has a lot of overhead resistance to contend with.

I would only be a buyer of this stock after its report if it breaks above that descending trend line (look for a move above $25) on big volume. Look for volume that's close to or well above its three-month average action of 963,000 shares. I would add to any long positions if you see this stock trade above $25.75 a share. A move over $25.74 should set up the stock for a run towards $30 a share or possible even higher.

I would only short this name after its report if the stock drops below its 50-day moving average on heavy volume. I would add to any short positions if it then drops below $20 a share and look for a near-term target of $17 to $16 a share of the bears take full control of this stock.

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