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5 Heavily Shorted Stocks to Squeeze the Bears


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One earnings short-squeeze trade in the consumer cyclical sector is Sealy (ZZ), which is set to release numbers on Tuesday after the market close. This company, together with its subsidiaries, manufactures and markets various bedding products. Its products include mattresses and mattress foundations. Wall Street analysts, on average, expect Sealy to report revenue of $342.11 million on earnings of 4 cents per share.

This stock has been beaten down big in front of the quarter, since the stock has dropped from its May highs near $3 a share trading to its current price of just under $1.60 a share. This large drop has created an oversold condition that could provide for a sharp pop in the stock if Sealy can beat numbers and issue bullish guidance.

The current short interest as a percentage of the float for Sealy is an extremely large at 30%. That means that out of the 32.83 million shares in the tradable float, 14.91 million are sold short by the bears. This isn't a giant short interest, so if you see any strength in this stock post-earnings, then be prepared to play it from the long side.

From a technical standpoint, the stock is currently trading well below both its 50-day and 200-day moving averages, which is bearish. In fact, this stock has been displaying bearish trends for almost the entire year, with shares printing lower highs and lower lows a majority of the time. That said, the stock might finally be starting to find some buying support at around $1.55 to $1.60 a share.

If you're bullish on this stock, I would be a buyer after it reports earnings if the stock can trade above $1.70 a share on strong volume. Look for volume that's tracking in close to or above its three-month average action 331,800 shares. I would add to any long position once the stock then takes out its 50-day moving average of $1.91 a share. I would target a run back toward $2 to $2.15 a share if the bulls gain full control of this stock post-earnings.

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