5 Earnings-Related Short-Squeeze Plays

If you're in the bull camp on FDO, 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 $63.35 to $64 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1,597,440 shares. If that breakout triggers, then FDO will set up to re-test or possibly take out its 200-day moving average at $65.60 or its 50-day moving average at $66.45 a share.

I would simply avoid FDO or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at $61.90 to $60.86 a share with high volume. If we get that action, then FDO will set up to re-test or possibly take out its next major support level that sits just below $58 a share.

Sonic

One potential earnings short-squeeze candidate is Sonic (SONC), which is set to release numbers on Thursday after the market close. This company operates and franchises a chain of quick-service drive-in restaurants in the United States. Wall Street analysts, on average, expect Sonic to report revenue of $126.45 million on earnings of 11 cents per share.

If you're looking for a stock with a decent short interest that's been uptrending very strong heading into its earnings report, then make sure to check out shares of Sonic. This stock has been trending strong in 2012, with shares up a whopping 52%.

The current short interest as a percentage of the float for Sonic is notable at 6.5%. That means that out of the 54.27 million shares in the tradable float, 3.52 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then we could easily see a solid short-squeeze develop post-earnings.

From a technical perspective, SONC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly for the last two months, with shares moving higher from a low of $9.06 to its recent high of $10.64 a share. During that uptrend, shares of SONC have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed SONC within range of triggering a major breakout trade post-earnings.

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