WINDERMERE, Fla. ( Stockpickr) -- With earnings season in full swing on Wall Street, it's the perfect opportunity for market-players to create a powerful watch list of stocks that are due to report numbers that are also heavily shorted by the bears. As positive earnings come out and the bears rush to cover their positions, these stocks can pop.
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.
Sometimes the stock is going to be in such high demand that you will miss a lot of the move. That's why it can be worth betting prior to the report -- buy only if you have a very strong conviction that the stock is going to rip higher.My article Monday listed five prime candidates. Here's a look at a number of other stocks that could experience big short squeezes when they report earnings this week.