Acuity Brands

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A potential earnings short-squeeze trade in the electronics instruments and controls complex is Acuity Brands ( AYI), which is set to release numbers on Wednesday before the market open. This company, through its subsidiaries, engages in the design, production, and distribution of lighting solutions and services in North America and internationally. Wall Street analysts, on average, expect Acuity Brands to report revenues of $454.72 million on earnings of 62 cents per share.

Wall Street analysts are looking for a 38% rise in second-quarter earnings per share for Acuity Brands, which if hit would mark the second straight quarter of accelerating earnings growth. Recently, Canaccord Genuity reiterated its buy rating on the stock and raised its price target to $81 from $63 a share. The firm said execution has been impressive, having consistently gained market share in a flat/declining end market over the past few years while managing its costs.

The current short interest as a percentage of the float for Acuity Brands is notable at 5.9%. That means that out of the 40.76 million shares in the tradable float, 2.45 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.2%, or by about 143,000 shares. If the bears are caught leaning to heavy into the quarter, then we could easily see a sizable short-squeeze trigger that pushed this stock up notably higher.

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From a technical perspective, AYI is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending very strong for the past six months, with shares rising from $42.10 to a recent high of $64.82. During that uptrend, AYI has consistently made higher lows and higher highs, which is bullish technical price action. That move has now pushed AYI within range of triggering a near-term breakout trade post-earnings.

If you like the setup for AYI here, I would look for long-biased trades after its report if the stock manages to break out above some near-term overheard resistance at $64.82 a share, or above Tuesday's daily high on heavy volume. Look for volume on that move that registers near or well above its three-month average action of 322,752 shares. If we get that action, I would look for AYI to trend up towards $70 to $75 a share post-earnings.

I would simply avoid this stock or look for short-biased trades if AYI fails to break out and then drops below some near-term support at $62.50 to $61.40 (its 50-day) a share with high volume. Target a drop toward $58 to $56 a share or possibly lower if the bears whack this stock down post-earnings.

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