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My first earnings short-squeeze trade idea today is
Netflix(NFLX - Get Report), which is set to release its numbers on Monday after the market close. This company is an Internet subscription service streaming television shows and movies. Wall Street analysts, on average, expect Netflix to report revenue of $868.57 million on a loss of 27 cents per share.
This company has beaten Wall Street estimates for the last four quarters in a row and its coming off a quarter where it beat estimates by 18 cents, reporting a profit of 73 cents per share versus a mean estimate of 55 cents per share. Netflix has registered an average year-over-year revenue growth of 48.2% over the last four quarters. During the fourth quarter of last year, Netflix's profit dropped 25.2% to $35.2 million, or 63 cents a share, from $47.1 million, or 87 cents a share, the year earlier.
The current short interest as a percentage of the float for Netflix is very high at 17%. That means that out of the 54.09 million shares in the tradable float, 9.2 million are sold short by the bears. This is a very large short interest on a stock with a small tradable float. If Netflix can deliver what the bulls are looking for, then look for a monster short-squeeze post-earnings.
From a technical perspective, NFLX is currently trading below both its 50-day and 200-day
moving averages, which is bearish. This stock has been downtrending for the last three months, as shares have dropped from $133.43 to its recent low of 98.52 a share. During that downtrend, shares of NFLX have mostly made lower highs and lower lows, which is bearish price action.
If you're bullish on NFLX, I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $109.71 to $112.46 ( its 50-day) a share with high-volume. Look for volume on that move that registers close to or above its three-month average action of 6.5 million shares. If we get that action, then look for NFLX to make a run at $123 to $126 a share or possibly higher post-earnings.
I would simply avoid NFLX or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $100.40 to $98.52 a share with heavy volume. If we get that action, target a drop back towards $90 a share or possibly lower if the bears hammer this stock down post-earnings.
Netflix, one of the
Best-Performing S&P 500 Stocks of 2012, shows up on a list of
4 Battleground Stocks Fought Over by the Biggest Investors.