Interpace Diagnostics Group Inc. (IDXG) will report earnings before the market opens this morning, and the stock could either come off my watch list or jump into my portfolio.
The set-up: I uncovered IDXG while looking for stocks with good technical set-ups last week, and Interpace was up about 8 percent on Friday and had a good base of support. When I pulled up more information on the stock, however, I noticed almost a 20 percent short position on a low-float stock, making it a potential short-squeeze play, especially with earnings looming.
If this stock beats on earnings, you could see a pretty good short squeeze that could result in a 30 or 40 percent pop, potentially all the way up to the 200-day moving average of $1.80 per share.
The issue: No matter how good your technical set-up, it’s tough to trust it when you have news coming in. You have to assume Friday’s big gain was mostly caused by anticipation of earnings, and may have been shorts trying to protect themselves.
That said, you need to look past the immediate technical set-up to see what happens at the open off the news.
The play: If the earnings webcast is good news, I expect IDXG to blow past the 50-day moving average at $1.43. It will gain 5 or 10 percent out of the gate; if that happens in the first 15 minutes or so of trading, I will then look for a pullback. If I see the stock find some support above that 50-day moving average, I will buy looking for the next move higher; though I will set my stop-loss tight.
On an earnings miss, there is no play here now. I won’t even look at shorting the stock because it already is heavily shorted and that will get worse on bad news.
Jeff Williams is the lead trader of PennyPro.com. He is a short-term trader of stocks under $10 a share. At the time this article was published on RagingBull.com, he had no shares, options or open orders on IDXG, though he was planning to watch the company’s earnings webcast to decide if he might trade the stock after the market open, as described in this article.