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TheStreet Open House

5 Stocks Facing an Earnings Short Squeeze

I would avoid CIEN or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 200-day moving average of $14.70 a share with high volume. If we get that action, then CIEN will set up to re-test or possibly take out its next major support levels at its 50-day of $13.73 and then more support at around $12.50 a share.

Joy Global

Another earnings short-squeeze trade play is Joy Global (JOY), which is set to release numbers on Wednesday before the market open. This company is a manufacturer and servicer of mining equipment for the extraction of coal and other minerals and ores. The equipment is used in the mining regions globally to mine coal, copper, iron ore, oil sands, and other minerals. Wall Street analysts, on average, expect Joy Global to report revenue of $1.42 billion on earnings of $1.91 per share.

During the last quarter, this company missed Wall Street estimates by 9 cents per share, after reporting a net income of $1.79 per share versus estimates of $1.90 a share. Joy Global beat Wall Street estimates during the second quarter. This company has averaged year-over-year revenue growth of 31.3% over the last four quarters.

The current short interest as a percentage of the float for Joy Global stands at 6.1%. That means that out of the 105.05 million shares in the tradable float, 6.39 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a decent short-covering rally if Joy Global can deliver bullish earnings news.

From a technical perspective, JOY is currently trending just below its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last month and change, with shares moving between $53.67 a share on the downside and $60 a share on the upside. A high-volume outside of that range post-earnings will likely set up the next major trend for shares of JOY.

If you're bullish on JOY, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above its 50-day at $58.30 and its 200-day at $61.45 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2,309,240 shares. If that breakout triggers, then JOY will set up to re-test or possibly take out its next major overhead resistance levels at $64 to $66.80 a share.

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