Acuity Brands

My first earnings short-squeeze play is lighting solutions provider Acuity Brands (AYI), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Acuity Brands to report revenue of $609.09 million on earnings of $1.12 per share.

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During the last quarter, LED orders more than doubled year-over-year, and earnings rose 21% to 75 cents per share vs. estimates of 83 cents per share, and revenue grew 12% to $546.2 million vs. estimates of $553.9 million.

The current short interest as a percentage of the float for Acuity Brands is notable at 6%. That means that out of the 42.35 million shares in the tradable float, 2.55 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally post-earnings as the bears move to cover some of their trades.

From a technical perspective, AYI is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending strong over the last two months, with shares moving higher from its low of $116.77 to its recent high of $138.21 a share. During that uptrend, shares of AYI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AYI within range of triggering a major breakout trade post-earnings.

If you're bullish on AYI, 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 $138.21 to $140.51 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 470,309 shares. If that breakout begins post-earnings, then AYI will set up to re-test or possibly take out its next major overhead resistance levels at $143.75 to its 52-week high of $146.28 a share. Any high-volume move above those levels will then give AYI a chance to tag or trend well north of $150 a share.

I would simply avoid AYI 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 at $132.50 a share with high volume. If we get that move, then AYI will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $126.92 to $120 a share.

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