5 Earnings Short-Squeeze Trades

Mitcham Industries

One earnings short-squeeze play in the oil well services and equipment complex is Mitcham Industries (MIND), which is set to release numbers on Tuesday after the market close. This company, through its subsidiaries, engages in the leasing, sale, and service of geophysical and other equipment to the seismic industry worldwide. Wall Street analysts, on average, expect Mitcham Industries to report revenue of $38.23 million on earnings of 83 cents per share.

If you're looking for a beaten-down heavily-shorted stock heading into its earnings this week, then make sure to check out shares of Mitcham Industries. So far in 2012, this stock has dropped around 20% with shares getting pounded lower from its April high of $26.44 to today's low of $17 a share.

The current short interest as a percentage of the float for Mitcham Industries stands at 5.9%. That means that out of the 11.89 million shares in the tradable float, 708,000 are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.4%, or by about 54,600 shares. If the bears are caught leaning too hard into this quarter, then this stock could see a decent short-covering rally.

From a technical perspective, MIND is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending hard during the last two months, with shares making mostly lower highs and lower lows, which is bearish technical price action. That move has pushed MIND into oversold territory, since its current relative strength index reading is 32.14. Oversold can always get more oversold, but if we see some post-earnings price strength, then MIND could see a decent short-squeeze.

If you're in the bull camp on MIND, I would look for long-biased trades if after they report this stock manages to move back above its 200-day moving average of $18.97, and then above some near-term overhead resistance at $19.383 a share with high-volume. Look for volume on that move that hits near or above its three-month average action of 230,868 shares. If we get that action, then MIND could re-test and possibly take out its 50-day moving average of $21.62 a share.

I would simply avoid MIND or look for short-biased trades if after earnings the stock fails to sustain a move back above its 200-day at $18.97, and then drops below some past support at $16 a share with high-volume. If we get that action, then MIND could be in for a serious drop back toward $14 to $13 a share if the bears whack this down post-earnings.

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