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TheStreet Open House

5 Hated Stocks Poised to Pop on Bullish Earnings

Stocks in this article: FINLFDOWORTIBXGBX

Family Dollar Stores

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Another potential earnings short-squeeze play is specialty retailer Family Dollar Stores (FDO), which is set to release its numbers on Thursday before the market open. This company operates a chain of self-service retail discount stores primarily for low and middle income consumers in the U.S. Wall Street analysts, on average, expect Family Dollar Stores to report revenue of $2.37 billion on earnings of $1.07 per share.

Just this morning, S&P Capital IQ raised its rating on the stock to buy from hold. The firm expects demand at Family Dollar to benefit from favorable weather and lower gasoline prices in the short term. This company is also looking to register its fifth-straight quarter of revenue increases when it reports this week.

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The current short interest as a percentage of the float for Family Dollar Stores sits at 3.2%. That means that out of the 96.40 million shares in the tradable float, 3.6 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a short-covering rally if Family Dollar Stores can report a solid number and raise forward guidance.

From a technical perspective, FDO is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since March, with shares soaring from a low of $52.90 to a recent high of $74.73 a share. During that uptrend, shares of FDO have consistently made higher lows and higher highs, which is bullish technical price action. That said, the stock recently pulled back off that high if $74.73 to a near-term low of $69.30 a share.

If you're in the bull camp on FDO, then I would wait until after it reports numbers and look for long-biased trades if this stock can manage to take out some near-term overhead resistance at $72 to $74.73 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.8 nukkuib shares. If we get that action, then FDO will enter new 52-week high territory, and the stock could easily print north of $80 post-earnings.

I would simply avoid FDO or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then takes out some near-term support at $69.30, and then its 50-day moving average of $67.98 a share with high volume. If we get that move, then FDO could easily trade down towards its next significant support levels at $67 to $65 a share or possibly much lower.

As of the most recently reported quarter, Family Dollar was one of Third Point's holdings and also showed up in Bill Ackman's portfolio.

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