ITT Educational Services

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My first earnings short-squeeze play is ITT Educational Services ( ESI), a provider of postsecondary degree programs in the U.S., which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect ITT Educational Services to report revenue of $273 million on earnings of 90 cents per share.

The current short interest as a percentage of the float for ITT Educational Services is extremely high at 57.9%. That means that out of the 14.21 million shares in the tradable float, 8.52 million shares are sold short by the bears. This is a huge short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of ESI post-earnings.

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From a technical perspective, ESI 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 month and change, with shares moving higher from its low of $22.27 to its recent high of $28.50 a share. During that move, shares of ESI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ESI within range of triggering a major breakout trade.

If you're bullish on ESI, 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 $28.50 to $28.52 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 763,368 shares. If that breakout hits, then ESI will set up to re-test or possibly take out its next major overhead resistance levels at $32 to $35 a share. Any high-volume move above those levels will then put $40 into range for shares of ESI.

I would simply avoid ESI 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 $26.21 to its 50-day at $25.39 a share with high volume. If we get that move, then ESI will set up to re-test or possibly take out its next major support levels at $23 to $22.27 a share. Any high-volume move below those levels will then give ESI a chance to tag its 200-day at $19.63 a share.

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