My final earnings short-squeeze play is NetApp (NTAP), a provider of storage systems and data management solutions for IT infrastructures, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect NetApp to report revenue of $1.53 billion on earnings of 49 cents per share.
Just recently, Robert Baird upgraded NetApp to neutral from underperform and slapped a $44 per share price target on the stock. The firm said that NTAP is cutting costs and aggressively returning cash to investors. Brean Capital also just raised its price target on NTAP to $50 from $43 following industry checks that indicate a strengthening storage demand environment.
The current short interest as a percentage of the float for NetApp is pretty high at 11.8%. That means that out of the 358.61 million shares in the tradable float, 42.31 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6%, or by about 2.39 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of NTAP could easily surge higher post-earnings as the shorts jump to cover some of their bets.
From a technical perspective, NTAP 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 four months, with shares moving higher from its low of $32.62 to its recent high of $43.12 a share. During that uptrend, shares of NTAP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NTAP within range of triggering a major breakout trade post-earnings.
If you're in the bull camp on NTAP, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high at $43.12 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 7.30 million shares. If that breakout triggers, then NTAP will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $60 a share.
I would avoid NTAP 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 $41 a share and then back below its 50-day at $39.54 a share with high volume. If we get that move, then NTAP will set up to re-test or possibly take out its next major support levels at $37 to $36 a share, or even its 200-day at $35.10 a share.
To see more potential earnings short squeeze plays, check out the Earnings Short-Squeeze Plays portfolio on Stockpickr.
-- Written by Roberto Pedone in Delafield, Wis.
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