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My first earnings short-squeeze trade idea today is aerospace and defense player
AeroVironment(AVAV - Get Report), which is set to report results on Wednesday after the market close. This company engages in the design, development, production, support and operation of unmanned aircraft systems and efficient energy systems for various industries and governmental agencies. Wall Street analysts, on average, expect AeroVironment to report revenue of $62.54 million on a loss of 3 cents per share.
AeroVironment has been hammered by the bears so far in 2012, with shares down by over 23%.
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The current short interest as a percentage of the float for AeroVironment stands at 6.1%. That means that out of the 19.01 million shares in the tradable float, 1.16 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. If the bulls hear the news they're looking for, then AVAV could short-squeeze big post-earnings.
From a technical perspective, AVAV is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has dropped sharply from its June high of $27.82 to its recent low of $21.97 a share. During that slide, shares of AVAV made lower highs and lower lows, which is bearish technical price action. After that drop, shares of AVAV have started to trend sideways between $23 and $24.88 a share. A move outside of that sideways trading pattern post-earnings will likely setup the next major trend for AVAV.
If you're bullish on AVAV, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $24.88 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 192,288 shares. If we get that action, then AVAV will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $26.48 to $27.82 a share post-earnings.
I would simply avoid AVAV or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some near-term support at $23.02 a share with heavy volume. If we get that move, then AVAV will setup to re-test and possibly take out its next major support areas at $21.97 to $21.14 a share. Keep in mind that any move below $21.14 should be considered bearish price action since it will push AVAV into new 52-week low territory.