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5 Earnings Short-Squeeze Plays

I would avoid CSOD or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some key near-term support levels at $27.48 to $26 a share with heavy volume. If we get that action, then CSOD will set up to re-test or possibly take out its next major support levels at $24.23 to its 50-day at $23.53 a share.

Solazyme

My final earnings short-squeeze trade idea is Solazyme (SZYM), which is set to release numbers on Wednesday after the market close. This company is in the business of transforming a range of low-cost plant-based sugars into high-value oils. Wall Street analysts, on average, expect Solazyme to report revenue of $8.83 million on a loss of 38 cents per share.

This stock has been crushed by the sellers so far in 2012, with shares down by around 35%. That extreme weakness now has shares of Solazyme trending just 20 cents off its 52-week low of $7.29 a share heading into its earnings report. That weakness has also pushed this stock into oversold territory, since its current relative strength index (RSI) reading is 21.82. Oversold can always get more oversold, but it's also an area that you can see monster bounces from heavily-shorted stocks.

The current short interest as a percentage of the float for Solazyme is very high at 15.7%. That means that out of the 37.55 million shares in the tradable float, 5.14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 24.2% or by about 1 million shares. If the bears are caught leaning too hard into this quarter, then we could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, SZYM is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares falling from a high of $14.23 to its recent low of $7.29 a share. During that downtrend, shares of SZYM have been consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock is now very oversold and could be setting up for a powerful bounce post-earnings.

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