Pacific Sunwear of California

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One potential earnings short-squeeze candidate is operator of mall-based beachwear retail stores Pacific Sunwear of California ( PSUN), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pacific Sunwear of California to report revenue of $227.86 million on a loss of 16 cents per share.

Just recently, DA Davidson upgraded this stock to buy from neutral, citing an improved merchandising mix and potential acceleration in same-store sales. The firm also raised its price target on shares of PSUN to $3.50 from $2.20 a share.

The current short interest as a percentage of the float for Pacific Sunwear of California is pretty high at 12.8%. That means that out of the 30.53 million shares in the tradable float, 5.73 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then we could easily see a large short-squeeze develop post-earnings.

From a technical perspective, PSUN 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 $1.36 to its recent high of $2.58 a share. During that uptrend, shares of PSUN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of PSUN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on PSUN, 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 $2.58 to $2.73 a share and then once it moves above some past resistance at $3.16 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 219,800 shares. If that breakout triggers, then PSUN will set up to re-test or possibly take out its next major overhead resistance levels at $4.06 to $4.50 a share.

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