CarMax

Another potential earnings short-squeeze candidate is used vehicles retailer CarMax (KMX), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect CarMax to report revenue of $3.18 billion on earnings of 53 cents per share.

>>5 Stocks Poised for Breakouts

The current short interest as a percentage of the float for CarMax is notable at 4.1%. That means that out of the 221.86 million shares in the tradable float, 9.16 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a decent short squeeze post-earnings if KMX can deliver the news the bulls are looking for.

From a technical perspective, KMX is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has just started to trend back above its 50-day moving average of $47 a share, after touching its recent low of $44.90 a share. That spike is starting to push shares of KMX within range of triggering a near-term breakout trade post-earnings.

If you're bullish on KMX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $48.12 a share and then once it clears some near-term overhead resistance levels at $48.67 to $49.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.87 million shares. If that breakout starts after earnings, then KMX will set up to re-fill its previous gap-down-day zone from December that started at $53 a share. Any high-volume move above $53 would then give KMX a chance to tag $60 a share.

I would avoid KMX 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 $44.90 to $43.90 a share with high volume. If we get that move, then KMX will set up to re-test or possibly take out its next major support levels at its 52-week low of $40.34 a share to $37.50 a share.

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