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TheStreet Open House

5 Stocks Set to Soar on Bullish Earnings

Michael Kors

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My first earnings short-squeeze trade idea today is apparel player Michael Kors (KORS), which is set to report results on Tuesday before the market open. This company engages in the design, marketing, distribution and retail of branded women's apparel and accessories, and men's apparel. Wall Street analysts, on average, expect Michael Kors to report revenue of $360.62 million on earnings of 16 cents per share.

Just this morning, Wedbush said it would be a buyer of Michael Kors shares ahead of the company's earnings report as it sees potential for modest upside to estimates. The firm believes upside in the fourth quarter and maintained guidance for the balance of 2013 could lead to short covering, which it thinks may minimize any pressure resulting from the expiration of the IPO lockup on June 12. Wedbush reiterates an outperform rating on the stock with a $48 price target.

The current short interest as a percentage of the float for Michael Kors sits at 3%. That means that out of the 112.12 million shares in the tradable float, 3.18 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 41.8%, or by about 937,900 shares. If the bears are caught learning too hard into this quarter, then we could easily see a solid short-squeeze develop post-earnings.

>>5 Stocks Setting Up to Break Out

From a technical perspective, KORS is currently trading below its 50-day moving average, which is bearish. This stock formed a double top in March at around $50.69 to $50.48 a share. Since forming that top, shares of KORS have downtrended towards its recent low of $35.50 a share. During that downtrend, shares of KORS have consistently made lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on KORS, I would wait until after they release earnings and look for long-biased trades if this stock can manage to take out its 50-day moving average of $42.29, and then move above some near-term overhead resistance at $42.51 with high volume. Look for volume on that move that registers near or above its three-month average action of 2.8 million shares. If we get that action, then KORS could re-test its May high of $49.50 a share post-earnings.

I would simply avoid KORS or look for short-biased trades if after earnings it fails to trigger that move back above its 50-day, and then drops below that near-terms support at $35.50 a share with high-volume. If we get that action, then KORS could easily hit $32.50 to $30 a share or lower if the bears hammer this stock down post-earnings.

As of the most recently reported quarter, Michael Kors was one of Lone Pine Capital's top holdings and also showed up in Blue Ridge Capital's portfolio.

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