Mitek Systems

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My first earnings short-squeeze trade idea is software player Mitek Systems ( MITK), which is set to report its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Mitek Systems to report revenues of $3.51 million on earnings of 1 cent per share.

If you're looking for a small-cap stock that's trading very close to some near-term breakout levels, then make sure to take a hard look at shares of Mitek Systems. This stock has been trading within a range for the last month or so between $9.30 and $8.15 a share. A move outside of that range should setup this stock for its next big trend.

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The current short interest as a percentage of the float for Mitek Systems is pretty high at 13.5%. That means that out of the 19.94 million shares in the tradable float, 2.76 million shares are sold short by the bears. The float is very small here, and the short interest is high. This situation sets up the stock for a powerful short squeeze if the company can deliver bullish results and guidance.

From a technical perspective, MITK is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock was drilled lower from its October high of $12.50 to a recent low of $6.54 a share. After hitting that low, the stock has rebounded and started to trend higher towards its current price of $8.70 a share.

If you're bullish on MITK, I would look for long biased trades following their report if the stock takes out $9.30 a share with strong volume. Look for volume that's tracking in close to or above its three-month average of 494,790 shares. If that level gets taken out with volume, I would then look add to any long positions once MITK takes out $10.50 with volume. Target a run toward $11.50 to $12.50 a share if the bulls control this stock post-earnings.

I would only get short or avoid MITK if after earnings the stock fails to break out and then drops back below $8.42 and $7.92 with volume. I would target a drop back toward $7 to $6.50 a share, or possibly much lower if the bears smack this stock lower post-earnings.

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