5 Earnings Short-Squeeze Plays to Trade

With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

SodaStream

My first earnings short-squeeze play is SodaStream (SODA), which is set to release numbers on Wednesday before the market open. This company is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products. Wall Street analysts, on average, expect SodaStream to report revenue of $103.52 million on earnings of 72 cents per share.

The current short interest as a percentage of the float for SodaStream is gigantic at 47.7%. That means that out of the 16.82 million shares in the tradable float, 8.51 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.7%, or by about 306,000 shares. If the bears are caught leaning too hard into this quarter, then we could easily see SODA explode higher post-earnings.

From a technical perspective, SODA is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last three months, with shares dropping from a high of $44.50 to its recent low of $34.17 a share. During that slide lower, shares of SODA have been consistently making lower highs and lower lows, which is bearish technical action. That said, SODA has started to hit oversold levels with its current relative strength index (RSI) reading at 35.

If you're bullish on SODA, then I would wait until after its report and look for long-biased trades once it manages to break out above some near-term overhead resistance levels at $37.04 to $37.75 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 728,356 shares. If we get that breakout, then look for SODA to re-test or possibly take out its next major overhead resistance levels at $40.69 to $41.63 a share.

I would simply avoid SODA or look for short-biased trades if after earnings it fails to trigger that breakout, and then takes out some key near-term support at $34 to $33 a share with high volume. If we get that action, then SODA will set up to re-test or possibly take out its next major support levels at $29.44 to $28.28 a share.

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