Another earnings short-squeeze prospect is video game maker Electronic Arts (EA), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Electronic Arts to report revenue of $1.66 billion on earnings of $1.24 per share.
Just recently, Credit Suisse upgraded shares of Electronic Arts to outperform from neutral, citing positive changes from expected portfolio rationalization, better visibility on long-term product roadmap, and more attractive valuation given the recent pullback.
The current short interest as a percentage of the float for Electronic Arts is pretty high at 11.1%. That means that out of the 306.61 million shares in the tradable float, 32.68 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13%, or by about 3.75 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of EA could easily experience a monster short-squeeze post-earnings as the bears rush to cover some of their positions.
From a technical perspective, EA 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 few weeks, with shares moving higher from its low of $21.25 to its recent high of $24.59 a share. During that uptrend, shares of EA have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of EA within range of triggering a big breakout trade post-earnings.
If you're bullish on EA, 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 $24.59 a share (or Tuesday's intraday high if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 5.65 million shares. If that breakout hits, then EA will set up to re-test or possibly take out its next major overhead resistance levels at $26.63 to its 52-week high at $28.13 a share. Any high-volume move above those levels will then give EA a chance to trend north of $30 a share.
I would simply avoid EA or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $22.97 a share with high volume. If we get that move, then EA will set up to re-test or possibly take out its next major support levels $21.25 to $20.47 a share. Any high-volume move below those levels will then give EA a chance to re-test or possibly take out its next major support levels at $18 to $17 a share.