Adtran

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One potential earnings short-squeeze candidate is Adtran ( ADTN), which is set to release numbers on Wednesday before the market open. This company designs, manufactures and markets solutions and provides services and support for communications networks. Wall Street analysts, on average, expect Adtran to report revenue of $139.79 million on 6 cent per share.

During the last quarter, this company beat Wall Street estimates after reporting in line results in the prior quarter. In the third quarter, Adtran reported a profit of 17 cents per share, compared with Wall Street estimates of 16 cents per share. Two quarters ago, it reported a net income of 35 cents per share. Heading into this earnings report, net income has dropped 48.2% on average for the last four quarters.

The current short interest as a percentage of the float for Adtran is very high at 18%. That means that out of the 62.34 million shares in the tradable float, 10.47 million shares are sold short by the bears. This is a large short interest on a stock with a reasonably small float. Any bullish earnings news could easily spark a solid short-covering rally post-earnings.

From a technical perspective, ADTN is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strongly for the last three months, with shares soaring from its low of $15.29 to its recent high of $21.22 a share. During that uptrend, shares of ADTN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed ADTN within range of triggering a breakout trade post-earnings.

If you're bullish on ADTN, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $21.22 to $21.30 a share and then above $22 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.2 million shares. If that breakout triggers, then ADTN will set up to re-fill some of its previous gap down zone from last July that started at $27 a share.

I would avoid ADTN or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support at $20 a share with high volume. If we get that move, then ADTN will set up to re-test or possibly take out its 50-day moving average of $19.09 a share. Any move below its 50-day will then put $18.77 to $18.36 a share into focus for shares of ADTN.

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