Another earnings short-squeeze prospect is specialty retailer of casual apparel and accessories Aeropostale (ARO), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Aeropostale to report revenue of $779.66 million on earnings of 22 cents per share.
The current short interest as a percentage of the float for Aeropostale is rather high at 9.8%. That means that out of the 77.59 million shares in the tradable float, 6.93 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.6%, or by about 666,000 shares. If the bears are caught pressing their bets too strong into a bullish quarter, then we could easily see a solid short-covering rally develop post-earnings.
From a technical perspective, ARO is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last month, with shares moving higher from its low of $12.45 to its recent high of $14.30 a share. During that uptrend, shares of ARO have been consistently making higher lows and higher highs, which is bullish technical price action. That move is quickly pushing shares of ARO within range of triggering a major breakout trade post-earnings.If you're bullish on ARO, 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 $14.30 to its 200-day moving average at $14.61 a share and then once it takes out some past overhead resistance at $14.99 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.30 million shares. If that breakout triggers, then ARO will set up to re-fill some of its previous gap down zone from last August that started around $20 a share. I would avoid ARO or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average of $13.27 a share with high volume. If we get that move, then ARO will set up to re-test or possibly take out its next major support levels at $12.45 to $11.91 a share.
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