An earlier version of this article incorrectly stated that BofI would report earnings on Wednesday, Jan .27. The company reports earnings on Thursday, Jan. 28.

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.

World Acceptance

My first earnings short-squeeze idea is credit services player World Acceptance (WRLD) - Get Report , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect World Acceptance to report revenue of $143.07 million on earnings of $2.01 per share.

The current short interest as a percentage of the float for World Acceptance is extremely high at 56%. That means that out of the 5.44 million shares in the tradable float, 3.04 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of World Acceptance could easily rip sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, World Acceptance 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 from its low of $32.34 to its recent high of $39.29 a share. During that uptrend, shares of World Acceptance 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 World Acceptance, 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 50-day moving average of $38.81 a share and then above more key resistance levels at $39.29 to $41.13 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 152,732 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 $43.50 to $44.50, or even $47.81 to its 200-day moving average of $50.91 a share.

I would simply avoid World Acceptance or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support at $35 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 $32.34 to $30, or even $28 to $27 a share.

Consol Energy

Another potential earnings short-squeeze trading opportunity is integrated energy player Consol Energy (CNX) - Get Report , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Consol Energy to report revenue $717.26 million on a loss of 9 cents per share.

The current short interest as a percentage of the float for Consol Energy is extremely high at 28.6%. That means that out of the 197.32 million shares in the tradable float, 56.52 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.4%, or by about 2.39 million shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Consol Energy is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly over the last six months, with shares moving lower off its high of $15.48 to its recent low of $4.54 a share. During that downtrend, shares of Consol Energy have been consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to bounce off its new 52-week low of $4.54 a share, and it's beginning to trend within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Consol Energy, 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 at $6.75 to its 20-day moving average of $6.79 and then above its 50-day moving average of $7.28 a share high volume. Look for volume on that move that hits near or above its three-month average volume of 11.05 million shares. If that breakout triggers post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $8 to $8.70, or even $9 a share.

I would simply avoid Consol Energy 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 $5 to its new 52-week low of $4.54 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.

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For a different take on Consol, check out "Why Consol Energy Hasn't Yet Reached Bottom."

InvenSense

Another potential earnings short-squeeze candidate is semiconductor player InvenSense (INVN) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect InvenSense to report revenue of $117.71 million on earnings of 18 cents per share.

The current short interest as a percentage of the float for InvenSense is very high at 19.6%. That means that out of the 84.41 million shares in the tradable float, 16.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 14.7%, or by about 2.12 million shares. If the bears get caught pressing their bets into a strong 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, InvenSense is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly over the last three months and change, with share falling sharply off its high of $12.77 to its recent low of $6.96 a share. During that downtrend, shares of InvenSense have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to rebound off that $6.96 low, and its quickly moving within range of triggering a big breakout trade post-earnings.

If you're bullish on InvenSense, 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 $8.70 to its 20-day moving average of $8.80 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.95 million shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $10 to its 50-day moving average of $10.29 a share.

I would avoid InvenSense or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $6.96 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.

BofI Holding

Another earnings short-squeeze prospect is banking player BofI Holdings (BOFI) , which is set to release numbers on Thursday. Wall Street analysts, on average, expect Bofi Holdings to report revenue of $64.50 million on earnings of 42 cents per share.

The current short interest as a percentage of the float for Bofi Holdings is extremely high at 42.7%. That means that out of 57.50 million shares in the tradable float, 24.59 million shares are sold short by the bear. If the bulls get the earnings news they're looking for, then shares of Bofi Holdings could easily explode sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, BofI Holdings is currently trending below both its 50-day and 200-day moving averages, which is bearish. This his stock has been downtrending badly over the last four months, with shares falling sharply off its high of $35.98 to its recent low of $16.36 a share. During that downtrend, shares of Bofi Holdings have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on BofI Holdings, 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 at $17.97 a share to its 20-day moving average of $18.88 and its 50-day moving average of $19.64 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.72 million shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $22 to $24 a share.

I would simply avoid BofI Holdings or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $16.36 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.

Natural Grocers by Vitamin Cottage

My final earnings short-squeeze play is natural and organic grocery store player Natural Grocers by Vitamin Cottage (NGVC) - Get Report , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Natural Grocers by Vitamin Cottage to report revenue of $171.57 million on earnings of 18 cents per share.

The current short interest as a percentage of the float for Natural Grocers by Vitamin Cottage is very high at 19.6%. That means that out of the 9.21 million shares in the tradable float, 1.80 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Natural Grocers by Vitamin Cottage could easily jump sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, Natural Grocers by Vitamin Cottage is currently trending below its 200-day moving average and just above its 50-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last two months, with shares moving between $19.50 on the downside and $22.43 on the upside. Any high-volume move post-earnings above the upper-end of its recent sideways trending chart pattern could trigger a major breakout trade for shares of Natural Grocers by Vitamin Cottage.

If you're in the bull camp on Natural Grocers by Vitamin Cottage, 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 $21.99 to $22.43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 76,503 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 its 200-day moving average of $23.52 to $24.60, or even $26 a share.

I would avoid Natural Grocers by Vitamin Cottage 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 $19.82 to $19.61 a share and then below its new 52-week low of $19.50 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.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.