5 Hated Stocks Set to Soar on Earnings

Cisco Systems

My final earnings short-squeeze trade idea is communications equipment player Cisco Systems (CSCO), which is set to release numbers on Wednesday after the market close. This company designs, manufactures, and sells IP-based networking and other products related to the communications and information technology industry worldwide. Wall Street analysts, on average, expect Cisco Systems to report revenues of $11.60 billion on earnings of 46 cents per share.

This company has beaten Wall Street estimates for the last four quarters in a row, and it's coming off a quarter where it beat estimates by one cent, after reporting a net income of 42 cents per share versus estimates of 41 cents per share. Profits for Cisco Systems have trended higher year-over-year by an average of 4.8% over the last four quarters.

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The current short interest as a percentage of the float for Cisco Systems sits at 1%. That means that out of the 5.35 billion shares in the tradable float, 52.39 million are sold short by the bears. This is far from a huge short interest as a percentage of the float, but it's a large number of total shares short at over 52 million shares. Any bullish earnings news from Cisco Systems and we could see a decent short-covering rally develop post-earnings.

From a technical perspective, CSCO is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock ran into heavy selling resistance back in April at around $21.12 to $20.08 a share, and it subsequently fell down to its recent low of $14.96 a share in July. Since hitting that low, shares of CSCO have started to rebound back above its 50-day moving average, and it now trades at just over $17 a share.

If you're bullish on CSCO, then I would wait until after they report earnings and look for long-biased trades if it can manage to trigger a break out above some near-term overhead resistance at $17.79 a share, and then above its 200-day moving average of $18.30 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 41.2 million shares. If we get that action, then look for CSCO to trade up towards $19 to $20 a share post-earnings.

I would simply avoid CSCO or look for short-biased trades after earnings if it fails to trigger that breakout, and then moves back below some near-term support at its 50-day moving average of $16.58 a share with heavy volume. If we get that move, then CSCO will setup to re-test and possibly take out its next major support levels at $16 to $15 a share.

Cisco, which shows up on a list of 5 Dividend-Paying Stocks for the Next Decade, also was featured recently in "4 Tech Stocks to Trade (or Not)."

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