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My final earnings short-squeeze play is full-service restaurant operator
Darden Restaurants (
DRI), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Darden Restaurants to report revenue of $2.20 billion on earnings of 70 cents per share.
Just recently, Wunderlich issued a hold rating on shares of Darden Restaurants with a $50 per share price target. The firm said internal investments will take time to bear fruit.
>>5 Stocks Under $10 Setting Up to Trade Higher
The current short interest as a percentage of the float for Darden Restaurants is pretty high at 7.3%. That means that out of the 129.22 million shares in the tradable float, 9.47 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.1%, or by about 705,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of DRI could spike sharply higher post-earnings as the bears jump to cover some of those bets.
From a technical perspective, DRI is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last few weeks, with shares moving higher from its low of $45.71 a share to its intraday high of $49.50 a share. During that uptrend, shares of DRI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DRI within range of triggering a near-term breakout trade post-earnings.
If you're in the bull camp on DRI, 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 at $50.15 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.44 million shares. If that breakout hits, then DRI will set up to re-test or possibly take out its next major overhead resistance levels at $52.24 to $54.66 a share. Any high-volume move above those levels will then give DRI a chance to tag its 52-week high at $57.93 a share.
I would avoid DRI or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day at $48.62 a share and its 200-day at $48.27 a share with high volume. If we get that move, then DRI will set up to re-test or possibly take out its next major support levels at $45.71 to $42.75 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.