Here's How to Trade Bed, Bath & Beyond Ahead of Earnings Today

NEW YORK (TheStreet) -- If you are a recent investor in Bed, Bath & Beyond (BBBY) book your profits before the closing bell today. If you are a long-term investor looking to buy the stock, wait until Wednesday.

Professional traders have a short interest in shares of Bed, Bath & Beyond at approximately 12% of the shares available for trading. The home furnishing retailer reports quarterly earnings after the closing bell today and a better-than-expected report could create such demand that there could be a major short-squeeze rally.

Must Read: Warren Buffett's Top 10 Dividend Stocks

However, the company has also missed quarterly results in two of the last three quarters and matched estimates once. As a result, the stock price plunged significantly each time.

Odds favor Bed, Bath & Beyond will miss earnings again. Here's why.

A recent report by the U.S. Census Bureau shows household incomes declined slightly in 2013. On Monday, the report on existing home sales was weaker than expected for August with a year-over-year decline of 5.3%. In this environment consumers are likely reducing their purchases of home furnishing products, which should be reflected in the earnings report from Bed, Bath & Beyond.

Let's take a look at the daily chart for Bed, Bath & Beyond.

Courtesy of MetaStock Xenith

The daily chart for Bed, Bath & Beyond ($63.23) shows the extreme volatility following the last three earnings reports. Here are the three stock plunges from left to right.

The First Plunge: The stock set an all-time intraday high at $80.82 on Jan. 3 then plunged below its 200-day simple moving average, then at $73.51 on Jan. 9 after missing earnings estimates on Jan. 8. The stock traded as low as $62.12 on Feb. 3, down 23%.

The Second Plunge: The stock rebounded to as high as $70.98 on April 4, then the company matched earnings estimates on April 9. The stock plunged to as low as $59.89 on June 20, down 16%.

The Third Plunge: On June 25 the company missed estimates and the stock plunged to its 2014 intraday low at $54.96 on June 26, down 10% from the June 25 close.

The rebound shown from the June 26 low can be partially contributed to a short squeeze, but the stock failed at its 200-day simple moving average at $66.00 on Sept.11. The stock opened this morning below its 50-day simple moving average at $63.23. Not shown today is the 200-week simple moving average at $62.73 with today's low at $62.48.

Investment Strategies:

Overly simplified, a short-squeeze rally on a positive reaction to earnings should take the stock above its 200-day simple moving average at $65.40.

Must Read: Bed Bath & Beyond Earnings Preview: What Wall Street's Saying

A negative reaction to earnings should push the stock further below the 50-day simple moving average at $63.23 and the 200-week simple moving average at $62.73.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @Suttmeier

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates BED BATH & BEYOND INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BED BATH & BEYOND INC (BBBY) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, reasonable valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: BBBY Ratings Report

Richard Suttmeier, a former U.S. Treasury trader and trading manager in the primary dealer community, has more than 40 years of experience in the U.S. financial markets. Richard is an engineer by education with a master of science degree. He has been writing newsletters and market commentaries since 1984, and his engineering and trading background are the foundation for the combined fundamental and technical analysis used in the stories he writes exclusively for Richard’s “Crunching the Numbers” tables provide; key moving averages, weekly stochastic readings, earnings estimates, and value levels and risky levels at which to buy on weakness or to sell on strength. His stories cover: regional and community banks including data from the FDIC Quarterly Banking Profile, homebuilders following NAHB data and single-family starts, and stocks in several sectors including, transportation, healthcare, and retail. During earnings season Richard provides trading guidelines for popular stocks before they report, then scorecards after they report.

Facebook: Financial Market Strategist
Google: Richard Suttmeier

If you liked this article you might like

Why Hasn't Bed Bath & Beyond Been Attacked by an Activist Investor?

Why Hasn't Bed Bath & Beyond Been Attacked by an Activist Investor?



How to Not Get Robbed by Holiday Returns

How to Not Get Robbed by Holiday Returns

Stocks Close Higher as Wall Street Dissects New Tax Laws

Stocks Close Higher as Wall Street Dissects New Tax Laws

Stocks Trade Higher After Passage of U.S. Tax Law

Stocks Trade Higher After Passage of U.S. Tax Law