5 Stocks Set to Soar on Bullish Earnings

Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

Short-squeeze candidates are something that I tweet about on a regular basis. These are also the exact type of stocks that I love to trade and alert to my subscribers in real-time.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting very bullish technically and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.

Boston Beer

My first earnings short-squeeze play is alcoholic beverages producer Boston Beer  (SAM) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Boston Beer to report revenue $198.82 million on earnings of 96 cents per share.

The current short interest as a percentage of the float for Boston Beer is very high at 17.9%. That means that out of the 22.51 million shares in the tradable float, 4.04 million shares are sold short by the bears.

From a technical perspective, Boston Beer is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $171.47 to $172.32 a share. Following that potential bottom, shares of Boston Beer have now started to spike a bit higher and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're bullish on Boston Beer, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $181.68 a share and its 50-day moving average of $184.82 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 166,646 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $192.81 to $194.06, or even $203 to $205 a share.

I would simply avoid Boston Beer or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $172.32 to $171.47 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $167.02 to its 52-week low of $160.84 a share.

Briggs & Stratton

Another potential earnings short-squeeze trade idea is diversified machinery player Briggs & Stratton  (BGG) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Briggs & Stratton to report revenue $642.22 million on earnings of 89 cents per share.

The current short interest as a percentage of the float for Briggs & Stratton is very high at 17.5%. That means that out of the 41.29 million shares in the tradable float, 7.24 million shares are sold short by the bears.

From a technical perspective, Briggs & Stratton is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has recently formed a double bottom chart pattern, after shares found some buying interest at $22.41 to $22.45 a share. Following that potential bottom, shares of Briggs & Stratton have now started to trend higher and it's beginning to move within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on Briggs & Stratton, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $23.72 to $24.19 a share and then above its 52-week high of $24.48 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 608,814 shares. If that breakout fires off post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $30 to $35 a share.

I would simply avoid Briggs & Stratton or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $22.45 to $22.41 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $20 to its 200-day moving average of $19.51, or even $18 a share.

GATX

Another potential earnings short-squeeze candidate is rail and marine markets assets player GATX  (GMT) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect GATX to report revenue of $320.50 million on earnings of $1.19 per share.

The current short interest as a percentage of the float for GATX is very high at 19.9%. That means that out of the 41.61 million shares in the tradable float, 8.29 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5%, or by about 397,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, GATX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month and change, with shares moving higher off its low of $44.87 a share to its recent high of $49.53 a share. During that uptrend, shares of GATX have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're bullish on GATX, 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 $49.53 to $50.77 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 614,332 shares. If that breakout develops post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $52.50 to $57, or even its 52-week high of $60.74 a share.

I would avoid GATX 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 its 20-day moving average of $47.68 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $45.65 a share to its 2000-day moving average of $45.19 a share, or even $41 to $40 a share.

Acacia Research

Another earnings short-squeeze prospect is business services player Acacia Research  (ACTG) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Acacia Research to report revenue of $23.50 million on earnings of 4 cents per share.

The current short interest as a percentage of the float for Acacia Research is notable at 8.5%. That means that out of 48.72 million shares in the tradable float, 4.14 million shares are sold short by the bear. If this company can produce the earnings news the bulls are looking for, then shares of Acacia Research could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Acacia Research is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last month and change, with shares moving higher off its recent low of $2.82 a share to its recent high of $4.21 a share. During that uptrend, shares of Acacia Research have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on Acacia Research, 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 $4.21 to $4.50 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 783,241 shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $6.50 to its 200-day moving average of $6.22 a share.

I would simply avoid Acacia Research or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $3.94 a share to its 50-day moving average of $3.73 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $3.64 to $3.50, or even $3.30 to $3 a share.

Lam Research

My final earnings short-squeeze trading opportunity is semiconductor equipment player Lam Research  (LRCX) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Lam Research to report revenue of $1.31 billion on earnings of $1.10 per share.

The current short interest as a percentage of the float for Lam Research is very high at 16.9%. That means that out of the 158.24 million shares in the tradable float, 26.81 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.9%, or by about 995,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, Lam Research is currently trending above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last three months, with shares moving higher off its low of $62.85 a share to its recent high of $83.51 a share. During that uptrend, shares of Lam Research have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on Lam Research, 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 $83.51 to its 52-week high of $84.39 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.63 million shares. If that breakout triggers post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $90 to $95, or even $100 a share.

I would avoid Lam Research 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 its 20-day moving average of $81.51 a share to $80.29 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $77 to its 50-day moving average of $75.99, or even its 200-day moving average of $73.73 a share.

 

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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