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5 Earnings Short-Squeeze Trades

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United Natural Foods

A potential earnings short-squeeze trade is food processing player United Natural Foods (UNFI - Get Report), which is set to report results on Tuesday before the market open. This company is a distributor of natural, organic and specialty foods and non-food products in the U.S. and Canada. Wall Street analysts, on average, expect United Natural Foods to report revenues of $1.35 billion on earnings of 56 cents per share.

On Friday, Barclays said it maintains an equalweight on United Natural Foods with a price target of $40. The firm said its keeping its equalweight rating on the stock, due to strong revenue growth as opposed to strong EPS growth. To put it in simple terms, sales have gone up, but gross margins have gone down. The firm also said the new warehouse management system is a positive, but may take years to implement and payoff.

The current short interest as a percentage of the float for United Natural Foods is notable at 5%. That means that out of the 46.47 million shares in the tradable float, 2.33 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.3%, or by about 158,000 shares.

From a technical perspective, UNFI 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 $35.85 to a recent high of $51.92 a share. Now the stock has started to trend sideways for the past month or so, between $51.92 and $48 a share. A move outside of that range post-earnings should setup the next major trend for UNFI.

If you're bullish on UNFI, I would wait until after they release earnings. Look for long-biased trades if this stock can manage to trigger a break out above some near-term overhead resistance at $51.39 to $51.92 a share with high-volume. Look for volume on that move that's close to or above its three-month average action of 254,390 shares. If we get that action, then UNFI will be trading at a new 52-week high, and the stock could easily trend towards $60 a share.

I would simply avoid UNFI or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some near-term support at $48 to $47 a share with high-volume. If we get that action, then UNFI could trend lower toward $45 to $44 a share or possibly down to its 200-day moving average of $42.31 a share.
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