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My first earnings short-squeeze trade idea is Briggs & Stratton (BGG), a producer of air-cooled gasoline engines for outdoor power equipment, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Briggs & Stratton to report revenue of $474.97 million on earnings of 19 cents per share.
Just recently, Robert Baird lowered its price target on Briggs & Stratton to $22 from $27 following lower-than-expected pre-announced fourth quarter results. The firm cited adverse weather, softness in Europe and a tight inventory control channel that yielded a sales shortfall.
The current short interest as a percentage of the float for Briggs & Stratton is extremely high at 16.7%. That means that out of the 46.93 million shares in the tradable float, 7.84 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.6%, or by about 346,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of BGG could rip higher post-earnings as the bears rush to cover some of their bets.
From a technical perspective, BGG is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last six months, with shares pushing lower from $25 to its recent low of $18.69 a share. During that downtrend, shares of BGG have been making mostly lower highs and lower lows, which is bearish technical price action.
If you're bullish on BGG, 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 $20.98 to $21.99 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 393,298 shares. If that breakout hits, then BGG will set up to re-test or possibly take out its next major overhead resistance levels at $24 to $24.50 a share.
I would simply avoid BGG 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 $19.60 to $19.45 a share with high volume. If we get that move, then BGG will set up to re-test or possibly take out its next major support levels at $18.69 to $17 a share. Any high-volume move below those levels will then put $16 to $14.50 within range for shares of BGG.
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