5 Hated Earnings Stocks You Should Love

DELAFIELD, Wis. (Stockpickr) -- 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.

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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 technically very bullish 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 The Street doesn't like the numbers or guidance.

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

Clean Energy Fuels

My first earnings short-squeeze play is alternative energy player Clean Energy Fuels (CLNE), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Clean Energy Fuels to report revenue of $89.95 million on a loss of 30 cents per share.

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The current short interest as a percentage of the float for Clean Energy Fuels is very high at 25.2%. That means that out of the 68.62 million shares in the tradable float, 17.32 million shares are sold short by the bears. This is a large short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a large short-covering rally post-earnings as the bears rush to cover some of their positions.

From a technical perspective, CLNE is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways for the last two months and change, with shares moving between $8.27 on the downside and $10.16 on the upside. Shares of CLNE are now starting to trend within range of triggering a breakout trade above the upper-end of its recent range post-earnings.

If you're bullish on CLNE, 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 $9.42 to $9.62 a share and then once it clears more key resistance levels at $9.90 to $10.16 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.59 million shares. If that breakout triggers post-earnings, then CLNE will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $11.39 a share to $12.50 a share. Any high-volume move above those levels will then give CLNE a chance to tag $13 to $13.50 a share.

I would simply avoid CLNE 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 $8.59 to $8.46 a share and then below its 52-week low at $8.27 a share with high volume. If we get that move, then CLNE will set up to enter new 52-week-low territory, which is bearish technical price action.

SunEdison

Another potential earnings short-squeeze trade idea is solar power player SunEdison (SUNE), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect SunEdison to report revenue $593.88 million on a loss of 17 cents per share.

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The current short interest as a percentage of the float for SunEdison is very high at 24.6%. That means that out of the 231.57 million shares in the tradable float, 56.95 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5%, or by about 2.69 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of SUNE could easily spike sharply higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, SUNE is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month, with shares moving higher from its low of $16.09 to its recent high of $20.79 a share. During that uptrend, shares of SUNE have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SUNE within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on SUNE, 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 $20.79 to $21.76 a share and then once its clears its 52-week high at $21.93 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 13.46 million shares. If that breakout hits, then SUNE will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $30 to $35 a share.

I would simply avoid SUNE or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $19.55 a share to more near-term support at $18.21 a share with high volume. If we get that move, then SUNE will set up to re-test or possibly take out its next major support levels at $16.09 to $14 a share.

Polypore International

Another potential earnings short-squeeze candidate is global high-tech filtration player Polypore International (PPO), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Polypore International to report revenue of $161.72 million on earnings of 32 cents per share.

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The current short interest as a percentage of the float for Polypore International is extremely high at 26%. That means that out of the 44.48 million shares in the tradable float, 11.73 million shares are sold short by the bears. If Polypore International can deliver the earnings news the bulls are looking for, then shares of PPO could easily soar sharply higher post-earnings as the shorts jump to cover some of their bets.

From a technical perspective, PPO is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways for the last two months, with shares moving between $33.36 on the downside and $37.65 on the upside. Any high-volume move above the upper-end of its recent range post-earnings could trigger a big breakout trade for shares of PPO.

If you're bullish on PPO, 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 $36.88 to $37.65 a share and then once it takes out its 200-day moving average at $38.39 to $39.11 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 565,293 shares. If that breakout materializes after earnings, then PPO will set up to re-test or possibly take out its next major overhead resistance levels at $40.91 a share. Any high-volume move above $40.91 will then give PPO a chance to re-fill some of its previous gap-down-day zone from last October that started at $46.21 a share.

I would avoid PPO 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 $33.81 to $33.35 a share with high volume. If we get that move, then PPO will set up to re-test or possibly take out its next major support level at its 52-week low of $29.39 a share.


Keurig Green Mountain

Another earnings short-squeeze prospect is specialty coffee and coffeemaker player Keurig Green Mountain (GMCR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Keurig Green Mountain to report revenue of $1.05 billion on earnings of 95 cents per share.

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Just recently, Marc Riddick, a senior analyst at Williams Capital Group, said they aren't expecting a huge bump up at the moment for the coming quarter since it's not really a gifting season.

The current short interest as a percentage of the float for Keurig Green Mountain is pretty high at 12.2%. That means that out of the 112.96 million shares in the tradable float, 13.85 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of GMCR could easily jump sharply higher post-earnings as the bears move quick to cover some of their short positions.

From a technical perspective, GMCR is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been downtrending badly over the last three months, with shares falling from its high of $124.14 to its recent low of $90.08 a share. During that move, shares of GMCR have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of GMCR have now started to bounce higher off that $90.08 low and it's starting to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on GMCR, 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 $100.76 a share to its 50-day moving average of $103.96 a share with strong volume. Look for volume on that move that hits near or above its three-month average action of 4.04 million shares. If that breakout hits, then GMCR will set up to re-test or possibly take out its next major overhead resistance levels at $111.50 to $117.18 a share. Any high-volume move above those levels will then give GMCR a chance to tag its 52-week high at $124.42 a share.

I would simply avoid GMCR 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 $90.08 a share to its 200-day moving average of $84.16 a share with high volume. If we get that move, then GMCR will set up to re-test or possibly take out its next major support levels at $74 to $73 a share, or even $70 a share.

Ubiquiti Networks

My final earnings short-squeeze play is broadband wireless solutions player Ubiquiti Networks (UBNT), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Ubiquiti Networks to report revenue of $141.92 million on earnings of 49 cents per share.

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The current short interest as a percentage of the float for Ubiquiti Networks is extremely high at 21%. That means that out of the 26.15 million shares in the tradable float, 5.51 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.3%, or by about 125,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of UBNT could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, UBNT is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has just started to bounce higher right above its 200-day moving average of $39.29 a share. That spike is starting to push shares of UBNT within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're in the bull camp on UBNT, 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 $43.29 a share to its 50-day moving average of $45.35 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.59 million shares. If that breakout starts after earnings, then UBNT will set up to re-test or possibly take out its next major overhead resistance levels $50 to its all-time high at $56.85 a share.

I would avoid UBNT or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 200-day moving average of $39.29 a share with high volume. If we get that move, then UBNT will set up to re-test or possibly take out its next major support levels at $36.27 to $34.81 a share. Any high-volume move below those levels will then give UBNT a chance to tag $30 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short-Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

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