Paychex

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Another potential earnings short-squeeze trade is payroll, human resource and benefits outsourcing solutions provider Paychex ( PAYX), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Paychex to report revenue of $585.96 million on earnings of 38 cents per share.

The current short interest as a percentage of the float for Paychex is notable at 6.3%. That means that out of the 325.36 million shares in the tradable float, 20.51 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a solid short-covering rally if Paycheck delivers the earnings news the bulls are looking for.

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From a technical perspective, PAYX 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 six months, with shares soaring higher from its low of $30.55 to its recent high of $38.66 a share. During that uptrend, shares of PAYX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of PAYX within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on PAYX, 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 $38 to its 52-week high at $38.66 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.24 million shares. If that breakout triggers, then PAYX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $47 a share.

I would simply avoid PAYX 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 levels at its 50-day moving average of $37.09 a share to $36.14 a share with high volume. If we get that move, then PAYX will set up to re-test or possibly take out its 200-day moving average at $33.89 a share.

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