K12

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Another potential earnings short-squeeze trade is technology-based education player K12 ( LRN), which is set to release numbers on Thursday before the market open. This company offers curriculum and educational services designed to facilitate individualized learning for students in kindergarten through 12th grade. Wall Street analysts, on average, expect K12 to report revenue of $165.39 million on a loss of 3 cents per share.

This stock has been off to a hot start so far in 2012, with shares up over 30%. Despite that hot start, shares of K12 are trending well off its 52-week high of $37 a share as we move close to its earnings report.

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The current short interest as a percentage of the float for K12 is extremely high at 41.1%. That means that out of the 26.14 million shares in the tradable float, 10.42 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.1%, or by about 113,000 shares.

From a technical perspective, LRN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last month, with shares skyrocketing from a low of $17.19 to its recent high of $23.94 a share. During that sharp move higher, shares of LRN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now moved LRN within range of triggering a major breakout trade post-earnings.

If you're bullish on LRN, then I would wait until after its report and look for long-biased trades if this stock can manage to take out some overhead resistance levels to $23.94 to $25.39 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 250,186 shares. If we get that breakout, then look for LRN to re-test and possibly take out its next major overhead resistance levels at $26.40 to $28.83 a share.

I would avoid LRN or look for short-biased trades if after earnings it fails to trigger that breakout and then drops below its 200-day at $22 and its 50-day at $21.10 a share with heavy volume. If we get that action, then LRN will setup to re-test and possibly take out its next major support level at $20.28 a share.

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