One potential earnings short-squeeze play in the home building complex is Toll Brothers (TOL), which is set to release numbers on Wednesday before the market open. This company designs, builds, markets and arranges financing for single-family detached and attached homes in luxury residential communities. Wall Street analysts, on average, expect Toll Brothers to report revenue of $381.96 million on earnings of 4 cents per share.
This company missed Wall Street estimates last quarter after beating estimates in the prior quarter. During the first quarter, Toll Brothers reported a loss of 2 cents per share vs. Wall Street estimates of 3 cents per shares. Over the last four quarters, revenue has trended lower by an average of 2% year over year. The biggest drop occurred in the third quarter of the last fiscal year, when it dropped 13.2%.The current short interest as a percentage of the float for Toll Brothers is rather high at 10.3%. That means that out of the 148.24 million shares in the tradable float, 15.36 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 18.1%, or by about 2.35 million shares. From a technical perspective, TOL is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the past six months, with shares soaring from a low of $18.95 to a recent high of $27.80 a share. During that uptrend, shares of TOL have mostly made higher lows and higher highs, which is bullish technical price action. That move has how pushed TOL within range of triggering a major breakout trade post-earnings. If you're a bullish on TOL, then I would wait until after they report and look for long-biased trades if this stock can trigger a break out above its 52-week high of $27.80 a share with high volume. Look for volume on that move that registers close to or above its three-month average volume of 3.8 million shares. If we get that action, then shares of TOL should easily trade north of $30 a share if the bulls jump into this stock post-earnings. I would avoid TOL or look for short-biased trades if the stock fails to trigger that breakout, and then drops back below its 50-day moving average of $24.65 a share with high volume. Target a move lower back below some near-term support at $23 to its 200-day moving average of $20.50 a share if the bears hammer this stock lower post-earnings. Toll Brothers was also featured recently in "7 Stocks With Relative Strength to Beat the Market."
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