5 Hated Stocks Poised to Pop on Earnings

Dunkin Brands Group

Another potential earnings short-squeeze play is Dunkin Brands Group (DNKN), which is set to release its numbers on Thursday before the market open. This company is a franchisor of quick-service restaurants serving hot and cold coffee and baked goods, as well as hard serve ice cream. Wall Street analysts, on average, expect Dunkin Brands Group to report revenue of $174.05 million on earnings of 35 cents per share.

Just recently, Wells Fargo said it expects Dunkin Brands' multiple to advance in 2013, due partly to what it sees as high visibility into continued mid-teens EPS growth in 2013 and 2014. The firm maintains an outperform rating.

>>5 Stocks Ready to Break Out

The current short interest as a percentage of the float for Dunkin Brands Group is rather high at 10.7%. That means that out of the 110.88 million shares in the tradable float, 11.13 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.2%, or by about 545,000 shares. If the bears are caught leaning too hard into this quarter, then we could easily see a sharp short-covering rally develop post-earnings.

From a technical perspective, DNKN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending fairly strong for the last two months, with shares rising from a low of $27.93 to its recent high of $33.09 a share. During that uptrend, shares of DNKN have been making higher lows and higher highs, which is bullish technical price action. That move has now pushed DNKN within range of triggering a near-term breakout trade.

If you're in the bull camp on DNKN, 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 levels at $32.50 to $33.09 a share with high volume. Look for volume on that move that hits near or above its three-month average action of about 2 million shares. If DNKN triggers that move, then this stock will setup to re-test or possibly take out its next major overhead resistance levels at $36.11 to $37.02 a share post-earnings.

I would simply avoid DNKN 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 of $30.19 a share with high volume. If we get that move, then DNKN will setup to re-test or possibly take out its next major support levels at $28.50 to $27.93 a share.

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