My first earnings short-squeeze play is durable goods rent-to-own operator Rent-A-Center (RCII - Get Report), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Rent-A-Center to report revenue of $787.95 million on earnings of 75 cents per share.
The current short interest as a percentage of the float for Rent-A-Center is very high at 16.1%. That means that out of the 51.73 million shares in the tradable float, 8.34 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.2%, or by about 562,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of RCII could easily rip significantly higher post-earnings as the shorts rush to cover some of their positions.
Must Read: 5 Rocket Stocks for a Volatile Week
From a technical perspective, RCII is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last six months, with shares dropping sharply from over $39 to its recent low of $30.74 a share. During that downtrend, shares of RCII have been consistently making lower highs and lower lows, which is bearish technical price action.
If you're bullish on RCII, 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 $32.01 to its 50-day moving average of $33.08 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 524,976 shares. If that breakout hits, then RCII will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $35.70 to $37.23 a share. Any high-volume move above those levels will then give RCII a chance to tag $40
I would simply avoid RCII or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 52-week low of $30.74 a share to some more past support at $30.30 a share with high volume. If we get that move, then RCII will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $25 to $22 a share.