Groupon

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Another earnings short-squeeze play is daily deals player Groupon ( GRPN), which is set to release its numbers on Monday after the market close. This company is a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Wall Street analysts, on average, expect Groupon to report revenue of $573.13 million on earnings of 3 cents per share.

In a note to clients last Friday, Morgan Stanley analyst Scott Devitt reiterated his bullish overweight rating on the stock, writing that he expects an in-line or better quarter. Devitt said shares of Groupon have been selling off recently because of negative sentiment on long duration stories, confusion around accounting for goods, and the lock-up expiration. He reiterated his price target on the stock at $17.

The current short interest as a percentage of the float for Groupon is extremely high at 26.3%. That means that out of the 225.79 million shares in the tradable float, 55.22 million shares are sold short by the bears. The bears have also been increasing their bets dramatically from the last reporting period by 46%, or by about 17.38 million shares. If the bears are caught leaning too hard into this quarter, then we could easily see an explosive short squeeze develop post-earnings.

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From a technical perspective, GRPN is currently trading below its 50-day moving average, which is bearish. This stock has been stuck in a nasty downtrend for the last six months, with shares plunging from around $19 to its recent low of $6.35 a share. During that sharp move lower, shares of GRPN have consistently made lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on GRPN, then I would wait until after they report and look for long-biased trades if this stock triggers a breakout above some near-term overhead resistance levels at $8.16 a share, and then above its 50-day moving average of $8.59 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 8,249,890 shares. If we get that move, then GRPN could easily re-test or possibly take out its next significant overhead resistance levels at $10.67 to $11.39 a share, or even $12.43 a share.

I would simply avoid GRPN or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then moves back below some key near-term support levels at $6.59 to $6.35 a share with heavy volume. If we get that move, then GRPN could be in for a sharp decline since the stock will enter new 52-week-low territory below $6.35 a share.

For another take on Groupon, it was also featured recently in " 5 Social Networking Stocks to Sell Now."

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