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.

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

Nimble Storage

My first earnings short-squeeze trade idea is flash-optimized hybrid storage platform provider Nimble Storage (NMBL) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Nimble Storage to report revenue of $50.54 million on a loss of 16 cents per share.

The current short interest as a percentage of the float for Nimble Storage is extremely high at 20%. That means that out of the 25.16 million shares in the tradable float, 5.05 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.4%, or by about 555,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of NMBL could easily soar sharply higher post-earnings as the shorts jump to cover some of their trades.

From a technical perspective, NMBL is currently trending above its 50-day moving average, which is bullish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $24.77 to its intraday high of $29.82 a share. During that move, shares of NMBL have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NMBL within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on NMBL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance level at $31.49 to $31.66 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 891,095 shares. If that breakout kicks off post-earnings, then NMBL will set up to re-test or possibly take out its next major overhead resistance levels at $37.19 to $41.10 a share.

I would simply avoid NMBL 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 $27.79 a share with high volume. If we get that move, then NMBL will set up to re-test or possibly take out its next major support levels at $25.70 to $24.77 a share, or even $24.03 a share. Any high-volume move below those levels will then give NMBL a chance to tag its next major support levels at $22.40 to $19.17 a share.

Workday

Another potential earnings short-squeeze play is enterprise cloud applications provider Workday (WDAY) , which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Workday to report revenue $177.31 million on a loss of 14 cents per share.

Just recently, Cantor Fitzgerald's Brian White started coverage on shares of Workday with a buy rating and a $108 per share price target. White thinks that Workday is one of the best next-generation cloud plays and that it could be a very disruptive player in the ERP market as it looks to expand into new territory.

The current short interest as a percentage of the float for Workday is pretty high at 10.9%. That means that out of the 94.51 million shares in the tradable float, 10.32 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of WDAY could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, WDAY 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 and change, with shares moving higher from its low of $76.85 to its intraday high of $89.88 a share. During that uptrend, shares of WDAY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WDAY within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on WDAY, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some overhead resistance at $92.15 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.61 million shares. If that breakout begins post-earnings, then WDAY will set up to re-test or possibly take out its next major overhead resistance levels at $96.49 to $105.48 a share, or even $110 a share.

I would simply avoid WDAY or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 200-day at $84.75 and its 50-day at $84.51 a share with high volume. If we get that move, then WDAY will set up to re-test or possibly take out its next major support levels at $81.60 to $76.85 a share. Any high-volume move below those levels will then give WDAY a chance to tag its next major support levels at $74.32 to $70 a share.

Bio-Reference Laboratories

Another potential earnings short-squeeze candidate is clinical laboratory testing services provider Bio-Reference Laboratories (BRLI) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Bio-Reference Laboratories to report revenue of $74.05 million on earnings of 55 cents per share.

The current short interest as a percentage of the float for Bio-Reference Laboratories is extremely high at 23.6%. That means that out of the 24.54 million shares in the tradable float, 5.81 million shares are sold short by the bears. This is a stock that sports a huge short interest and a very low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally for shares of BRLI post-earnings.

From a technical perspective, BRLI is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last two months and change, with shares moving higher from its low of $28.73 to its recent high of $32.94 a share. During that move, shares of BRLI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BRLI within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on BRLI, 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 $32.94 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 243,155 shares. If that breakout materializes post-earnings, then BRLI will set up to re-test or possibly take out its next major overhead resistance levels at $35 to its 52-week high at $37.97 a share. Any high-volume move above those levels will then give BRLI a chance to tag or trend north of $40 a share.

I would avoid BRLI or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 50-day moving average of $30.94 a share to some more near-term support at $30.84 a share to with high volume. If we get that move, then BRLI will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $28.40 to $26.09 a share.

Trina Solar

Another earnings short-squeeze prospect is China-based solar energy products player Trina Solar (TSL) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Trina Solar to report revenue of $562.35 million on earnings of 14 cents per share.

The current short interest as a percentage of the float for Trina Solar is extremely high at 22.6%. That means that out of the 74.68 million shares in the tradable float, 16.89 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 15.9%, or by about 2.31 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of TSL could easily spike sharply higher post-earnings as the shorts move to cover some of their trades.

From a technical perspective, TSL 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 over the last month, with shares moving higher from its low of $10.15 to its intraday high of $13.62 a share. During that uptrend, shares of TSL have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TSL within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on TSL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $14.40 to $14.85 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 4.33 million shares. If that breakout gets set off post-earnings, then TSL will set up to re-test or possibly take out its next major overhead resistance levels at $17.10 to its 52-week high at $18.77 a share.

I would simply avoid TSL or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out some key near-term support at $13 a share with high volume. If we get that move, then TSL will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $11.97 to $11.16 a share.

Aruba Networks

My final earnings short-squeeze play is enterprise mobility solutions provider Aruba Networks (ARUN) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Aruba Networks to report revenue of $194.85 million on earnings of 23 cents per share.

Just recently, Stifel Nicolaus's Sanjiv Wadhawani raised his rating on shares of Aruba Networks to buy from hold and slapped a $24 per share price target on the stock. Wadhwani said his channel checks are indicating that pricing is holding up and Aruba Networks is stealing business away from Cisco Systems (CSCO) .

The current short interest as a percentage of the float for Aruba Networks is pretty high at 11.9%. That means that out of the 103.86 million shares in the tradable float, 12.37 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of ARUN could easily experience a sharp short-covering rally post-earnings that forces the bears to cover some of their trades.

From a technical perspective, ARUN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last two months, with shares moving higher from its low of $16.05 to its recent high of $20.32 a share. During that uptrend, shares of ARUN have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ARUN within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on ARUN, 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 $20.32 to $20.99 a share and then above $21.21 to $22 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.98 million shares. If that breakout develops post-earnings, then ARUN will set up to re-test or possibly take out its next major overhead resistance levels at its 52-week high of $23.58 to $27 a share.

I would avoid ARUN 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 $18.82 a share with high volume. If we get that move, then ARUN will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $17.98 to $17.25 a share. Any high-volume move below those levels will then give ARUN a chance to tag its next major support level at $16.05 to its 52-week low of $15.97 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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