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5 Earnings Short-Squeeze Trades

Stocks in this article: GIII UNFI MFRM MIND CYBX

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Mattress Firm

One potential earnings short-squeeze trade in the specialty retail complex is Mattress Firm (MFRM), which is set to release numbers on Tuesday after the market close. This company is a specialty retailer of mattresses and related products and accessories in the U.S. Wall Street analysts, on average, expect Mattress Firm to report revenue of $210.76 million on earnings of 25 cents per share.

Last Friday, Piper Jaffray wrote this in a research note to clients, "We are initiating coverage of MFRM with an Overweight rating and $45 price target, based on 20x our F13E EPS of $2.23. We believe MFRM is well positioned to take market share within the highly fragmented and rapidly growing mattress industry that continues to shift toward specialty/non-innerspring mattresses and away from innerspring mattresses."

The current short interest as a percentage of the float for Mattress Firm is extremely high at 43.3%. That means that out of the 9.16 million shares in the tradable float, 3.48 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 31.7%, or by about 837,000 shares. This is a huge short interest on a stock with a very small float. If Mattress Firm can deliver the numbers that the bulls are looking for, then this stock could easily skyrocket post-earnings.

From a technical perspective, MFRM is currently trading below its 50-day moving average, which is bearish. During the last month and change, shares of MFRM have been downtrending from a high of $48.18 to a recent low of $31 a share. That move has pushed the stock back below its 50-day moving average of $38.62 a share; that level is now acting has resistance for the past few weeks.

If you're bullish on MFRM, then I would wait until after they report and look for long-biased trades if this stock can manage to move back above its 50-day moving average of $38.62, and then above some near-term overhead resistance at $40 a share with high-volume. Look for volume on that move that's near or above its three-month average action of 257,934 shares. If we get that action, then I would look for MFRM to tag $42 to $44 a share or possibly much higher.

I would avoid MFRM or look for short-biased trades if the stock fails to maintain a trend above its 50-day at $38.62, and then drops below some major near-term support at $32.70 to $31 a share with high-volume. If we get that move, then look for MFRM to drop back toward $28 to $25 a share if the bears slam this stock down post-earnings.

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