GoPro Chart Shows a Potential Pop After First-Quarter Earnings

Picture, if you will, GoPro (GPRO) - Get Report stock at $14 a share.

The action camera maker is set to report first-quarter earnings results after the closing bell Thursday. And based on technical metrics, GoPro stock is setting up for a solid momentum trade of more than 15% in either direction. But the stock's recent activity, combined with its short-interest volume suggests a strong move to the upside.

GoPro only needs to report "less bad" results for the trade to work.

For the quarter that ended in March, Wall Street expects GoPro to report a loss of 60 cents per share on revenue of $169.08 million, compared to the year-ago quarter, when the GoPro earned 24 cents per share on $363.11 million in revenue. For the full year ending in December, the loss is expected to be 77 cents, reversing a 76-cent profit a year ago, while revenue of $1.37 billion would mark a decline of about 15% year over year.

GoPro shares closed Wednesday at $11.40, down 2.15%. The shares have gotten crushed, plunging some 37% year to date, compared with a 0.35% rise in the S&P 500 (SPX) index. And that's even with GoPro stock rising almost 17% in the past three months.

But with much of the bad news out the way, including concerns about rising inventory, GoPro only needs to issue better guidance for the stock to keep moving higher. The bet is that it will.

Take a look at the chart below, courtesy of TradingView.

Despite its punishment, GoPro stock has been relatively stable, if not predictable, trading in a tight range of $11 to $12.80 since its January plunge from around $20 per share. The 2.15% drop to $11.40 at Wednesday's closing price puts the stock below all three critical benchmarks: its 20-day ($12.83), 50-day ($12.53) and 100-day ($13.35) moving averages.

This suggests the few remaining weak hands who held the stock sold out ahead of Thursday's report.

The optimal time to sell the stock was when the shares were at or above the 20-day or near $13 (solid blue line) bucks. So from a technical perspective, that line is now the target following the earnings release.

How to execute the trade: Buy GoPro shares at market open Thursday at $11.30 to $11.80, using $11.00 as near-term support. Hold the stock through the earnings report, due out after the close. The bet is that earnings will be less bad and guidance will please the Street, sending GoPro stock higher towards its 20-day. Combined with the rising short interest of about 24% of the float, this could create a short squeeze, sending the stock towards $14 per share (solid pink line), a 13% to 22% gain.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.