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TheStreet Open House

5 Stocks Poised to Pop on Bullish Earnings


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My final earnings short-squeeze play today is communications equipment player Oclaro (OCLR), which is set to release numbers on Tuesday after the market close. This company is a provider of core optical network components, modules and subsystems to global telecommunications equipment manufacturers. Wall Street analysts, on average, expect Oclaro to report revenue of $105.73 million on a loss of 15 cents per share.

During the last quarter, Oclaro reported revenue of $88.7 million, but GAAP reported sales were 23% lower than the prior quarter's of $115.7 million. This stock has been beaten-down during the last six months, with shares plunging by over 35%. That sharp move lower could be setting up OCLR for a rebound and possibly short-squeeze trade post-earnings.

The current short interest as a percentage of the float for Oclaro is rather high 16.5%. That means that out of the 50.72 million shares in the tradable float, 8.42 million are sold short by the bears. This is a very high short interest on a stock with a relatively low float. Any bullish earnings news out of Oclaro and we could see a solid short-covering rally post-earnings.

From a technical perspective, OCLR is currently trading above its 50-day moving average, and below its 200-day moving average, which is neutral trendwise. This stock was destroyed by the sellers back in late March, when it fell from $4.97 to its May low of $2.11 a share. During that move, shares of OCLR were making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to mark a bottom during that last three months as buyers have moved in at around $2.11 to $2.21 a share.

If you're bullish on OCLR, then I would wait until after they report earnings and look for long-biased trades if it can manage to trigger a breakout trade above some near-term overhead resistance at $2.83, and then above more resistance $3.10 to $3.15 a share with high volume. If we get that action, then OCLR will have a great chance of re-testing and possibly taking out its 200-day moving average at $3.42 a share.

I would simply avoid OCLR after earnings if this stock fails to trigger that breakout, and then moves back below its 50-day moving average of $2.61 a share, and more support at $2.47 a share with heavy volume. If we get that action, then OCLR will likely re-test those recent lows at $2.21 to $2.11 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.


Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to and maintains the website, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
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