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TheStreet Open House

5 Earnings Short Squeeze Plays to Trade

I would simply avoid BSFT or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves back below $34.42 and its 200-day moving average of $33.97 with high volume. If we get that action, then BSFT will set up to re-fill its previous gap that started near $28 a share.


Another potential earnings short-squeeze trade is Fossil (FOSL), which is set to release its numbers on Tuesday before the market open. This is a global design, marketing and distribution company that specializes in consumer fashion accessories. Wall Street analysts, on average, expect Fossil to report revenue of $713.10 million on earnings of $1.16 per share.

During the second quarter, this company saw its profit rise by 11.6% to $57.3 million from $51.4 million the year earlier, beating Wall Street estimates. Revenue jumped 14.3% to $636.1 million from $556.7 million. Fossil is looking to extend its streak of income increases to four straight quarters this earnings period. Net income spiked 22% in the fourth quarter of the last fiscal year and 4.2% in the first quarter.

The current short interest as a percentage of the float for Fossil is notable at 5.8%. That means that out of the 53.71 million shares in the tradable float, 3.12 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a solid short-covering really post-earnings if Fossil can produce solid results and bullish guidance.

From a technical perspective, FOSL is currently trading above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways for the last three months, with shares moving between $81.90 on the downside and $96.40 on the upside. A move outside of that range post-earnings will likely set up the next major trend for FOSL.

If you're in the bull camp on FOSL, then I would wait until after its report and look for long-biased trades once this stock manages to break out above some near-term overhead resistance at $96.40 share with high volume. Look for volume on that move that registers near or above its three-month average action of 1,065,740 shares. If that breakout triggers, then FOSL will set up to re-fill some of its previous gap down zone from May that started near $125 a share.

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