Select Comfort

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Another potential earnings short-squeeze trade is bed manufacturer and retailer Select Comfort ( SCSS), which is set to report results on Wednesday after the market close. Wall Street analysts, on average, expect Select Comfort to report revenues of $177.50 million on earnings of 22 cents per share.

Back on Dec. 20, I wrote about Select Comfort in " 5 Stocks Setting Up to Break Out," and since then, the stock has ripped higher from $21 to its recent 52-week high of $28.05 a share. That momentum could easily continue if Select Comfort can report a strong quarter and squeeze the shorts even more.

The current short interest as a percentage of the float for Select Comfort is rather high at 10.9%. That means that out of the 50.44 million shares in the tradable float, 5.55 million are sold short by the bears. This stock has a pretty low float and high short interest, so a decent quarter should spark a sizable short-squeeze. Whenever a stock has a low float and high short interest, any potential short-squeeze becomes amplified since the supply and demand issue for shares can be thrown off balanced rapidly.

From a technical perspective, SCSS is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has been in a monster uptrend for the last number of months, after shares found big buying support at around $17.78 to $18.58 a share. Since those buyers stepped in, SCSS went on to break out over $22.19 and continue its uptrend. Now the stock is within range of breaking out again to all-time highs if it can take out $28.05 post-earnings.

If you're bullish on SCSS, I would wait until after it reports its results and buy the stock once it breaks out above its 52-week high of $28.05 a share on strong volume. Look for volume that's tracking in close to or above its three-month average action of around 1 million shares. If we get that high-volume breakout, then I would look for a 10% to 15% move higher in SCSS post-earnings, since this stock is so heavily shorted.

I would simply avoid any long trades in SCSS or get short if this stock fails to take out its 52-week highs post-earnings, and then drops below some near-term support at $25 a share on big volume. If we get that action, then I would target a drop back towards $23 to $22.16 (50-day) a share, or possibly lower if the bears hammer this down post-earnings.

To see more potential earnings short squeeze plays, including OraSure Technologies ( OSUR), ValueClick ( VCLK) and Silicon Graphics ( SGI), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.


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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to and maintains the website, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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