GameStop

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Another earnings short-squeeze candidate is GameStop ( GME), which is set to release numbers on Thursday before the market opens. This company is a multichannel retailer of video game products and personal computer entertainment software. Wall Street analysts, on average, expect GameStop to report revenue of $3.72 billion on earnings of $1.72 per share.

GameStop met Wall Street estimates last quarter after beating numbers in the prior two quarters. Net income has declined in the last two quarters. Net income fell 23.4% in the second quarter. Revenue went up in the third quarter after it dropped in the prior quarter. In the second quarter, revenue declined 3.1%.

The current short interest as a percentage of the float for GameStop is extremely high at 41.4%. That means that out of the 134.22 million shares in the tradable float, 54.85 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.3%, or by about 4.22 million shares.

From a technical perspective, GME is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been trading inside of a range for the past couple of months, with shares moving from $25.70 on the upside and around $22.50 on the downside. This stock has recently started to move back above both its 50-day of $23.65 and its 200-day of $23.85, and it's now within range of a near-term breakout trade.

If you're bullish on GME, I would wait until after it reports earnings and look for long biased trades if it breaks out above some near-term overhead resistance at $24.55 to $25 a share with high-volume. Look for volume on that move that's near or well above its three-month average volume of 3,245,370 shares. If we get that action, I would look for GME to spike back toward $26.50 to $28 a share post-earnings.

I would avoid GME or look for short-biased trades if it fails to break out post-earnings and then drops below some near-term support at $23.30 a share with heavy volume. If we get that action, target a drop back towards the lower end of its recent range at $21.32 a share or possibly lower if the bears hammer this post-earnings.

To see more potential earnings short squeeze plays, including Wet Seal ( WTSLA), Micron Technology ( MU) and Dollar General ( DG), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

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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 Beconequity.com and maintains the website Maddmoney.net, 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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