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5 Heavily Shorted Stocks That Could Pop on Earnings

Canadian Solar

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One more earnings short-squeeze play is Canadian Solar (CSIQ - Get Report), which is set to release numbers on Wednesday before the market open. This company designs, develops, manufactures and sells solar cell and module products that convert sunlight into electricity for a variety of uses. The company conducts all of its manufacturing operations in China. Wall Street analysts, on average, expect Canadian Solar to report revenue of $449.76 million on earnings of 28 cents per share.

This company beat Wall Street estimates last quarter after missing estimates the prior quarter. Revenue has been trending up for the past three straight quarters, as seen by 31.6% rise in the first quarter of this year, 78.1% jump in the fourth quarter of last year and 77% rise in the third quarter of last year.

This stock has been beaten down big in the last few months, with shares dropping from a recent high in July of $12 a share to its current price of just above $7.75 a share. This stock could easily see some robust short covering from these beaten-down levels if they report a solid quarter and guide higher.

The current short interest as a percentage of the float for Canadian Solar is an extremely large 16.8%. That means that out of the 29.69 million shares in the tradable float, 5.01 million are sold short by the bears.

From a technical standpoint, the stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock has also been making lower lows and lower highs for the past two months, which is another bearish trend. That said, the stock just found some buying support at $6.33 and has run into resistance at around $8 a share.

I would only be a buyer of this stock after its report if it trades above $8 on strong volume. Look for volume that's close to or greater than its three-month average action of 915,000 shares. I would add aggressively to any long position if CSIQ takes out its 50-day moving average of $9.46 a share on solid volume.

I would only short this name if it drops below $6.33 a share on big volume after the company reports. A drop below that level could mean that a test of $4 to $3 a share is in the cards, since $6.33 is a big near-term support level.

To see more potential earnings short squeeze candidates, including Knightsbridge Tankers (VLCCF), CACI International (CACI) and Jamba (JMBA), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.


Follow Stockpickr on Twitter and become a fan on Facebook.
At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to and maintains the website, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
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