Ironwood Pharmaceuticals

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My first earnings short-squeeze trade idea is entrepreneurial pharmaceutical company Ironwood Pharmaceuticals ( IRWD), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Ironwood Pharmaceuticals to report revenue of $16.85 million on a loss of 49 cents per share.

If you're looking for a heavily shorted stock that's uptrending strongly heading into its quarterly report, then make sure to check out shares of Ironwood Pharmaceuticals. During the last month, this stock has soared by 35% and shares are now trading just one point off its 52-week high of $15.92 a share.

The current short interest as a percentage of the float for Ironwood Pharmaceuticals is rather high at 14.3%. That means that out of the 91.96 million shares in the tradable float, 10.80 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5%, or by about 510,000 shares. If the bears are caught leaning too hard into this quarter, then we could see a large short-squeeze develop post-earnings.

From a technical perspective, IRWD is currently trending above both it 50-day and 200-day moving averages, which is bullish. This stock has been soaring during the last month, with shares moving higher from its low of $10.36 to its recent high of $14.74 a share. During that move, shares of IRWD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed IRWD within range of triggering a near-term breakout trade post-earnings.

If you're bullish on IRWD, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $14.74 to $15 a share and then once it clears its 52-week high of $15.92 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 616,062 shares. If that breakout hits, then IRWD will set up to re-test or possibly take out its next major overhead resistance level at $16.50 a share.

I would simply avoid IRWD or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $14 a share with heavy volume. If we get that move, then IRWD will set up to re-test or possibly take out its 200-day moving average of $12.50 a share.

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