Diamond Foods

Another potential earnings short-squeeze trade is U.S.-based branded packaged food player Diamond Foods ( DMND), which is set to release its numbers on Monday after the market close. Wall Street analysts, on average, expect Diamond Foods to report revenue of $239.03 million on earnings of 6 cents per share.

If you're looking for a heavily shorted stock that's been uptrending very strong heading into its earnings report this week, then make sure to take a hard look at shares of Diamond Foods. This stock has ripped higher so far in 2013, with shares up a whopping 30%.

The current short interest as a percentage of the float for Diamond Foods is extremely high at 33%. That means that out of the 17.91 million shares in the tradable float, 6.67 million shares are sold short by the bears. This is a low float high short interest situation, so any bullish earnings news could easily spark a monster short-squeeze for shares of DMND.

From a technical perspective, DMND is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares moving higher from its low of $13.35 to its recent high of $17.99 a share. During that uptrend, shares of DMND have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DMND within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on DMND, 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 at $17.99 a share, or above today's intraday high if it's greater with high volume. Look for volume on that move that registers near or above its three-month average action of 588,972 shares. If that breakout triggers, then HOV will set up to re-test or possibly take out its next major overhead resistance levels at $21.19 to $25 a share.

I would avoid DMND or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 200-day moving average of $17.22 a share with high volume. If we get that move, then DMND will set up to re-test or possibly take out its next major support levels at $16 to its 50-day moving average of $14.82 a share.

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