5 Stocks Set to Soar on Bullish Earnings

These heavily shorted stocks could get squeezed much higher if they report positive earnings this week.
By Roberto Pedone ,

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.

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.

American Eagle Outfitters

AEO data by YCharts

My first earnings short-squeeze trade idea is apparel stores player American Eagle Outfitters (AEO) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect American Eagle Outfitters to report revenue of $924.83 million on earnings of 34 cents per share.

The current short interest as a percentage of the float for American Eagle Outfitters is very high at 24.8%. That means that out of the 179.03 million shares in the tradable float, 44.54 million shares are sold short by the bears. If this company can produce the earnings news the bulls are looking for, then shares of American Eagle Outfitters could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, American Eagle Outfitters is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $14.13 to its recent high of $16.63 a share. During that uptrend, shares of American Eagle Outfitters 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 near-term breakout trade post-earnings.

If you're bullish on American Eagle Outfitters, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $16.38 a share and then above more key resistance levels at $16.81 to $17.03 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 5.18 million shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 52-week high of $18.49 to $19.33, or even $20 to $21 a share.

I would simply avoid American Eagle Outfitters 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 $15.50 to $15 a share with high volume. If we get that move, then this stock will set up to re-test or take out its next major support levels at $14.05 to $13, or even $12 a share.

Bob Evans Farms

BOBE data by YCharts

Another potential earnings short-squeeze trading opportunity is full-service restaurants player Bob Evans Farms (BOBE) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Bob Evans Farms to report revenue $323.35 million on earnings of 39 cents per share.

The current short interest as a percentage of the float for Bob Evans Farms is pretty high at 10.5%. That means that out of the 18.64 million shares in the tradable float, 1.96 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.2%, or by about 79,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily spike sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Bob Evans Farms is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last three months, with shares falling lower off its high of $48.59 to its recent low of $38.42 a share. During that downtrend, shares of Bob Evans Farms have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to bounce a bit off its $38.42 low and it's beginning to move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Bob Evans Farms, 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 its 20-day moving average of $41.04 to some more resistance at $41.19 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 232,012 shares. If that breakout gets underway post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $42.55 to $44, or even $45 to its 200-day moving average of $45.79 a share.

I would simply avoid Bob Evans Farms 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 $40 to $39 a share and then below its 52-week low of $38.75 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory, which is bearish technical price action.

Box

BOX data by YCharts

Another potential earnings short-squeeze candidate is application software player Box (BOX) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Box to report revenue of $76.76 million on a loss of 31 cents per share.

The current short interest as a percentage of the float for Box is very high at 20.1%. That means that out of the 34.92 million shares in the tradable float, 7.03 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.5%, or by about 101,000 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 move fast to cover some of their trades.

From a technical perspective, Box 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 over the last two months, with shares moving higher off its low of $10.93 to its recent high of $14.14 a share. During that uptrend, shares of Box 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 major breakout trade post-earnings.

If you're bullish on Box, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $14.14 to $14.80 a share and then above more resistance at $15 to $15.60 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 891,239 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 $17 to $19, or even $20 a share.

I would avoid Box or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 20-day moving average of $13.21 and its 50-day moving average of $12.77 a share and then below more support at $12.66 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 $12.21 to $12.12, or even its 52-week low of $10.93 a share.

Bazaarvoice

BV data by YCharts

Another earnings short-squeeze prospect is application software player Bazaarvoice (BV) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Bazaarvoice to report revenue of $49.57 million on a loss of 4 cents per share.

The current short interest as a percentage of the float for Bazaarvoice is notable at 6.5%. That means that out of 62.19 million shares in the tradable float, 4.04 million shares are sold short by the bear. If this company can deliver the earnings news the bulls are looking for, then shares of Bazaarvoice could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Bazaarvoice is currently trending below its 200-day moving average and just above its 50-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $4.10 to $4.17 a share. Following that bottom, this stock has now started to uptrend and move back above both its 20-day moving average at $4.52 and its 50-day moving average of $4.58 a share. That move has now pushed shares of Bazaarvoice within range of triggering a major breakout trade post-earnings.

If you're bullish on Bazaarvoice, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $4.76 to $5.04 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 581,214 shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $5.38 to its 200-day moving average of $5.60, or even $6 a share.

I would simply avoid Bazaarvoice or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day moving average of $4.58 and its 20-day moving average of $4.52 a share with high volume. If we get that move, then this stock will set up to re-test possibly take out its next major support levels at $4.20 to its all-time low of $4.10 a share.

G-III Apparel Group

GIII data by YCharts

My final earnings short-squeeze play is apparel clothing player G-III Apparel Group (GIII) - Get Report , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect G-III Apparel Group to report revenue of $912.87 million on earnings of $1.78 per share.

The current short interest as a percentage of the float for G-III Apparel Group stands at 6.9%. That means that out of the 40.33 million shares in the tradable float, 2.80 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.3%, or by about 308,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily soar sharply higher post-earnings as the bears jump to cover some of their trades.

From a technical perspective, G-III Apparel Group is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $40.41 to its recent high of $48.70 a share. During that uptrend, shares of G-III Apparel Group 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 G-III Apparel Group, 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 $47.26 a share to some more key near-term resistance at $48.70 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 477,281 shares. If that breakout kicks off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $55 to $56.25, or even its 200-day moving average of $61.02 a share.

I would avoid G-III Apparel Group 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 $45 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 $42.50 to its 52-week low of $40.41, or even $38 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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