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5 Earnings Short-Squeeze Plays

Z ChartZ data by YCharts


One potential earnings short-squeeze play is real estate information market place Zillow (Z), which is set to release numbers on Tuesday after the market close. This company provides information about homes, real estate listings and mortgages, through its Web site and mobile applications, enabling consumers connect with real estate and mortgage professionals. Wall Street analysts, on average, expect Zillow to report revenues of $27.14 million on earnings of 4 cents per share.

This company has beaten Wall Street estimates for the past three quarters in a row. During the last quarter, this company reported a profit of $1.7 million, or 6 cents per share, vs. a loss of $826,000, or 4 cents per share, from the same period a year ago. Revenue jumped more than twofold to $22.8 million from $11.3 million.

The current short interest as a percentage of the float for Zillow is extremely high at 44.7%. That means that out of the 12.55 million shares in the tradable float, 5.78 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.6%, or by about 306,000 shares. If the bears are caught learning too hard into a solid quarter, then this stock could explode higher as the shorts race to cover some of their positions.

From a technical perspective, Z is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently hit some resistance and formed a double top at around $44.23 to 44.00 a share. After confirming that topping pattern, the stock traded down to a recent low of $35.57 a share. Following that move, shares of Z have now moved back above its 50-day moving average of $37.37 a share with above average volume.

If you're bullish on Z, then I would wait until after they report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $42 to $44.23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 634,639 shares. If we get that move, then Z should hit $50 or higher post-earnings.

I would avoid Z or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below its 50-day moving average of $37.37 a share, and below some near-term support at $35.57 a share with heavy volume. If we get that move, then look for Z to re-test and possibly take out its 200-day moving average of $32.23 a share post-earnings.

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