AeroVironment

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My first potential earnings short-squeeze trade is aerospace and defense player AeroVironment ( AVAV), which is set to report results on Tuesday after the market close. This company designs, develops, produces and supports unmanned aircraft systems, and efficient energy systems for various industries and governmental agencies. Wall Street analysts, on average, expect AeroVironment to report revenue of $111.32 million on earnings of 72 cents per share.

The current short interest as a percentage of the float for AeroVironment sits at 7.9%. That means that out of the 18.23 million shares in the tradable float, 1.48 million shares are sold short by the bears. This is a situation with a very low float and decent short interest. If AeroVironment can deliver the numbers the bulls are looking for, then we could easily see a large short squeeze develop post-earnings.

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From a technical perspective, AVAV is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently hit a 52-week low of $21.14 a share and subsequently rallied hard to its current price of around $26 a share. That rally pushed shares of AVAV back above its 50-day moving average of $23.59 a share with heavy volume. Now AVAV is trading within range of triggering a near-term breakout trade post-earnings.

If you're bullish on AVAV, then I would wait until after it reports earnings and look for long-biased trades if this stock can manage to trigger a break out above some near-term overhead resistance at $26.25 and then above its 200-day moving average of $28.01 a share with high-volume. Look for volume on that move that hits near or above its three-month average action of 227,434 shares. If we get that move, then AVAV has a great chance of re-testing and possibly taking out its February high of $31.87 a share.

I would simply avoid AVAV or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some major near-term support at $23 a share with high-volume. If we get that move, then AVAV will be trending back below its 50-day, and it could easily re-test and possibly take out its 52-week low of $21.14 a share.

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