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5 Earnings Stocks Everyone Hates -- but You Should Love

Digital Generation

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Another potential earnings short-squeeze trade idea is ad management and distribution platform player Digital Generation (DGIT), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Digital Generation to report revenue of $92.60 million on earnings of 2 cents per share.

During the last quarter, this company reported revenue of $92 million, and GAAP reported sales were 0.9% lower than the prior-year quarter's $92.8 million.

>>5 Stocks Ready to Break Out

The current short interest as a percentage of the float for Digital Generation is extremely high at 42.5%. That means that out of the 17.35 million shares in the tradable float, 8.57 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11.9%, or by about 913,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of DGIT could soar substantially higher as the shorts jump to cover some of their bets.

From a technical perspective, DGIT 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 for the last month and change, with shares moving higher from its low of $6.15 to its recent high of $8.19 a share. During that move, shares of DGIT have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DGIT within range of triggering a major breakout trade.

If you're in the bull camp on DGIT, 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 $8.03 to $8.19 a share and then once it clears its 200-day at $8.45 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 453,871 shares. If that breakout triggers, then DGIT will set up to re-test or possibly take out its next major overhead resistance levels at $10.32 to $10.82 a share. Any high-volume move above those levels will then put $11.50 into range for shares of DGIT.

I would simply avoid DGIT 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 $7.46 to its 50-day at $7.36 a share with high volume. If we get that move, then DGIT will set up to re-test or possibly take out its next major support levels at $6.15 to $5.78 a share.

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