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5 Heavily-Shorted Stocks Set to Report Earnings

>>5 Stocks Insiders are Stashing

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

Hovnanian Enterprises

My first earnings short-squeeze play is Hovnanian Enterprises (HOV), which is set to release numbers on Thursday before the market open. This company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, mid-rise and high-rise condominiums, urban infill and active adult homes in planned residential developments. Wall Street analysts, on average, expect Hovnanian Enterprises to report revenue of $461.75 million on a loss of 6 cents per share.

The current short interest as a percentage of the float for Hovnanian Enterprises is extremely high at 31.4%. That means that out of the 105.54 million shares in the tradable float, 32.77 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.1%, or by about 2.74 million shares. If the bears are caught pressing their bets too hard into the quarter, then we could easily see an explosive move higher post-earnings.

From a technical perspective, HOV is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares moving from a low of $2.23 to its recent high of $5.80 a share. During that uptrend, shares of HOV have been consistently making higher lows and higher highs, which is bullish price action. That move has now pushed shares HOV within range of triggering a near-term breakout trade post-earnings.

If you're bullish on HOV, then I would wait until after its report and look for long-biased trades once this stock manages to break out above some near-term overhead resistance levels at $5.62 to $5.80 a share, or once it takes out its intraday high on Wednesday if it's above those levels with high volume. Look for volume on that move that hits near or above its three-month average action of 8,060,840 shares. If that breakout triggers, then HOV will set up to re-test or possibly take out its next major overhead resistance levels at $6.50 to $7.50 a share.

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