WINDERMERE, Fla. (Stockpickr) -- News events have the power to create big volatility in stocks, and the one event that can move them substantially higher or lower is an earnings release. Take that one step further and combine a bullish earnings report with a stock that's heavily shorted. Now, all of a sudden you have the fuel that can ignite a large short squeeze in any equity.Short-sellers hate being caught short a stock that announces bullish earning and forward guidance. When this happen, we often see a tradable short-squeeze develop as the bear rush to cover their positions and avoid huge losses. Even the most skilled short-sellers know that it's never a great idea to stay short once a big short-covering rally starts that's sparked by an earnings event. This is precisely why I search the market for heavily shorted stocks that are about to report earnings. You only need to find a couple of these candidates in a year to help enhance your portfolio returns -- the gains become so outsized in such a short timeframe that your profits add up quickly.
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