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Another potential earnings short-squeeze trade is retail discount store chain
Family Dollar Stores(FDO), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Family Dollar Stores to report revenue of $2.36 billion on earnings of 75 cents per share.
During the last quarter, this company matched Wall Street estimates after it reported net income of $1.06 per share. In the previous second quarter, the company topped Wall Street estimates by 2 cents per share. Family Dollar Stores is looking to report its fourth-straight revenue increase heading into this quarter.
>>e Retail Stocks Rising on Big Volume
The current short interest as a percentage of the float for Family Dollar Stores sits at 4%. That means that out of the 97.57 million shares in the tradable float, 4.45 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 34%, or by about 1.12 million shares. If the shorts are caught leaning too hard into this quarter, then we could easily see FDO soar higher post-earnings.
From a technical perspective, FDO is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock had been downtrending badly since June, with shares dropping from a high of $74.48 to its recent low of $61.06 a share. During that downtrend, shares of FDO were consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock has started to rebound and move back above its 50-day moving average of $64.29 a share.
If you're in the bull camp on FDO, 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 $66.58 to $66.96 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.5 million shares. If FDO triggers that breakout, then this stock will have a great chance of re-testing or possibly taking out its next significant overhead resistance levels at $69.14 to $70.78 a share 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 drops back below its 50-day moving average at $64.29 a share with high volume. If we get that move, then FDO will setup to re-test or possibly take out its 200-day moving average of $62.37 a share. If that 200-day gets taken out with volume, then FDO could easily drop below some more near-term support at $61.06 a share.