5 Heavily-Shorted Stocks About to Report Earnings

If you're in the bull camp on KBH, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $16.88 to $17.27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 6,444,380 shares. If that breakout hits, then KBH will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets are $20 to $23 a share.

I would simply avoid KBH or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day at $15.31 a share with high volume. If we get that action, then KBH will set up to re-test or possibly take out its next major support levels at $14 to $13.09 a share.

Darden Restaurants

One potential earnings short-squeeze candidate is Darden Restaurants (DRI), which is set to release numbers on Thursday before the market open. This company operates in the full-service dining segment of the restaurant industry, mainly in the United States. Wall Street analysts, on average, expect Darden Restaurants to report revenue of $1.95 billion on earnings of 26 cents per share.

During the last quarter, this company beat Wall Street estimates by 2 cents, after it reported a profit of 85 cents per share versus estimates of 83 cents per share. This company fell in line with Wall Street estimates during the fourth quarter of the last fiscal year. On the top line, Darden Restaurants is looking to register its fifth straight revenue increase heading into this quarter.

The current short interest as a percentage of the float for Darden Restaurants sits at 6%. That means that out of the 127.59 million shares in the tradable float, 7.66 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.6%, or by about 266,000 shares. If the bears are caught pressing their bets too hard into this quarter, then we could see a sizeable short-squeeze develop for shares of DRI.

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