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My final earnings short-squeeze trade idea is cloud computing player
Rackspace(RAX - Get Report), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Rackspace to report revenue of $355.42 million on earnings of 22 cents per share.
This company has registered double-digit year-over-year percentage revenue growth for the last four quarters. Over that timeframe, the company has averaged growth of 29.7%, with the biggest growth seen in the fourth quarter of the last fiscal year when revenue jumped 31.9%. Rackspace has reported increasing profits for three quarters in a row. During the most recent quarter, its profit jumped 36.1% year-over-year.
The current short interest as a percentage of the float for Rackspace stands at 8.4%. That means that out of the 111.60 million shares in the tradable float, 9.36 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to send shares of RAX screaming higher post-earnings if the company can deliver the numbers the bulls are looking for.
From a technical perspective, RAX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares soaring higher from its low of $58.56 to its recent high of $81.36 a share. During that uptrend, shares of RAX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RAX within range of triggering a near-term breakout trade post-earnings.
If you're in the bull camp on RAX, 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 $75 to $77.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.2 million shares. If that breakout triggers, then RAX will set up to re-test or possibly take out its 52-week high of $81.36 a share. Any high-volume move above $81.36 will then send RAX into new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $85 to $90 a share.
I would simply avoid RAX 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 $72.07 to $70 a share with high volume. If we get that move, then RAX will set up to re-test or possibly take out its next major support levels at $67.50 to $65 a share. Any high-volume move below $65 will then put $62.50 to $60 into range for shares of RAX.
To see more potential earnings short squeeze plays, check out the
Earnings Short Squeeze Plays portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.