Krispy Kreme Doughnuts

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My final earnings short-squeeze play is retailer and wholesaler of doughnuts, complementary beverages and packaged sweets Krispy Kreme Doughnuts ( KKD), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Krispy Kreme Doughnuts to report revenue of $111.36 million on earnings of 15 cents per share.

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The current short interest as a percentage of the float for Krispy Kreme Doughnuts is notable at 3.8%. That means that out of the 64.23 million shares in the tradable float, 2.37 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.3%, or by 77,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of KKD could trend sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, KKD 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 $12.59 to its recent high of $23.57 a share. During that uptrend, shares of KKD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of KKD within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on KKD, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high at $23.57 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.42 million shares. If that breakout triggers, then KKD will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $32 a share.

I would avoid KKD 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 $20.60 a share to its 50-day moving average at $20.07 a share with high volume. If we get that move, then KKD will set up to re-test or possibly take out its next major support levels at $18 to $16 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

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