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5 Earnings Short-Squeeze Plays

I would simply avoid BIG or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some major near-term support at $26.69 a share with heavy volume. If we get that action, then BIG will set up to enter new 52-week low territory, which is bearish technical price action.

Mattress Firm

One potential earnings short-squeeze candidate is Mattress Firm (MFRM), which is set to release numbers on Tuesday after the market close. This company is a specialty retailer of mattresses and related products and accessories in the U.S. Wall Street analysts, on average, expect Mattress Firm to report revenue of $271.59 million on earnings of 46 cents per share.

Just recently, and after meeting with management, Piper Jaffray reiterated an overweight rating on MFRM and called the stock one of its favorite investment ideas for the next 12 months. Piper believes the current risk/reward on shares significantly favors the upside over the next 12 months.

The current short interest as a percentage of the float for Mattress Firm is extremely high at 29.7%. That means that out of the 13.34 million shares in the tradable float, 3.93 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.8%, or by 69,000 shares. If the bears are caught pressing their bets too hard into this quarter, then we could easily see a huge short-squeeze develop post-earnings.

From a technical perspective, MFRM is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last two months, with shares dropping from a high of $33.80 to its recent low of $25.88 a share. During that downtrend, shares of MFRM have been mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of MFRM have started to rebound off that low of $25.88 and it's quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on MFRM, 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 at its 50-day moving average of $30.19 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 300,710 shares. If that breakout hits, then MFRM will set up to re-test or possibly take out its next major overhead resistance levels at $32.53 to $33.97 a share. Any high-volume move above $33.97 will then put $38 to $40 into focus for shares of MFRM.

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