First Marblehead

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If you're looking for an earnings short-squeeze play in the financial services sector, then take a look at First Marblehead ( FMD), which is set to release numbers on Tuesday after the market close. This company, together with its subsidiaries, provides outsourcing services for designing and implementing private education loan programs to national and regional financial institutions, and educational institutions in the U.S. Wall Street analysts, on average, expect First Marblehead to report revenues of $13.60 million.

This is a low-priced stock that could bounce sharply if the company can report a decent quarter and guide higher. I like this name for a post-earnings short-squeeze trade since the stock is starting to show some signs of strength if it can manage to trade above its 50-daym moving average of $1.56 after they report. The stock is also looking strong today with shares up over 10% ahead of the quarter.

The current short interest as a percentage of the float for First Marblehead is 6.6%. That means that out of the 55.37 million shares in the tradable float, 4.27 million are sold short by the bears.

From a technical standpoint, the stock is currently trading below its 50-day and 200-day moving averages, which is bearish. Since March, this stock has slide all the way down to a low of $1.18 a share from a high of $2.54 a share. The stock has recently found some buying support at around $120 a share and is now very close to moving above its 50-day moving average.

The way I would pay this stock is to buy it after they report if it trades above its 50-day moving average of $1.56 a share on strong volume. Look for volume the following day that's tracking in at close to or greater than its three-month average volume of 252,000 shares. I would add to any long position once the stock then trades above $1.70 a share and target a run back towards it 200-day moving average of $1.95 a share or possibly higher if the bulls can spark a big short-squeeze.

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