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One potential earnings short-squeeze candidate is retail drugstore chain operator
Rite Aid (
RAD), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Rite Aid to report revenue of $6.27 billion on a loss of 4 cents per share.
The current short interest as a percentage of the float for Rite Aid is notable at 3.7%. That means that out of the 896 million shares in the tradable float, 33.54 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 32%, or by about 8.13 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of RAD could easily explode higher post-earnings as the bears rush to cover some of their short bets.
From a technical perspective, RAD is currently trending above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares moving higher from its low of $1.65 to its recent high of $3.75 a share. During that uptrend, shares of RAD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RAD within range of triggering a major breakout trade post-earnings.
If you're bullish on RAD, 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 $3.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 20.36 million shares. If that breakout hits, then RAD will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $5 to $6 a share.
I would avoid RAD 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 $3.53 a share to its 50-day moving average of $3.25 a share with high volume. If we get that move, then RAD will set up to re-test or possibly take out its next major support levels at $3.08 to $2.80 a share.
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