5 Earnings Short-Squeeze Plays: Isle of Capri Casinos and More

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.

Mattress Firm

My first earnings short-squeeze trade idea is specialty retailer of mattresses and related products Mattress Firm  (MFRM) , which is set to release numbers on next Monday after the market close. Wall Street analysts, on average, expect Mattress Firm to report revenue of $431.01 million on earnings of 70 cents per share.

The current short interest as a percentage of the float for Mattress Firm is extremely high at 21.7%. That means that out of the 11.65 million shares in the tradable float, 2.53 million shares are sold short by the bears. This is a stock with a very low tradable float and a high short interest. Any bullish earnings news could easily set off a large short-squeeze for shares of MFRM post-earnings if the bears are forced into covering some of their positions.

From a technical perspective, MFRM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last month and change, with shares moving higher from its low of $54.53 to its recent high of $71.82 a share. During that uptrend, shares of MFRM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MFRM within range of triggering a big breakout trade post-earnings.

If you're bullish on MFRM, 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 around $71.71 to its 52-week high at $71.82 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 207,114 shares. If that breakout begins post-earnings, then MFRM will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $80 to $90 a share.

I would simply avoid MFRM 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 $68.14 a share with high volume. If we get that move, then MFRM will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $62.81 to $57.50 a share.

Vince Holing

Another potential earnings short-squeeze play is apparel clothing player Vince Holding  (VNCE) , which is set to release its numbers on next Monday after the market close. Wall Street analysts, on average, expect Vince Holding to report revenue $99.41 million on earnings of 33 cents per share.

The current short interest as a percentage of the float for Vince Holding is extremely high at 19.5%. That means that out of the 14.7 million shares in the tradable float, 2.88 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.6%, or by 275,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of VNCE could easily jump sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, VNCE 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 $29.67 to its intraday high of $37.03 a share. During that uptrend, shares of VNCE have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VNCE within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on VNCE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its all-time high of $39.08 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 251,786 shares. If that breakout develops post-earnings, then VNCE will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $50 a share, or even $55 a share.

I would simply avoid VNCE or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $34 to its 50-day moving average of $33.19 a share with high volume. If we get that move, then VNCE will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $31.15 to around $30 a share.

GW Pharmaceuticals

Another potential earnings short-squeeze candidate is biopharmaceutical player GW Pharmaceuticals  (GWPH) , which is set to release numbers on next Tuesday before the market open. Wall Street analysts, on average, expect GW Pharmaceuticals to report revenue of $14.62 million on a loss of 69 cents per share.

The current short interest as a percentage of the float for GW Pharmaceuticals is pretty high at 8.2%. That means that out of the 16.05 million shares in the tradable float, 1.31 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of GWPH could easily soar sharply higher post-earnings as the bears move to cover some of their bets.

From a technical perspective, GWPH is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last month and change, with shares moving higher from its low of $58.16 to its recent high of $82.64 a share. During that uptrend, shares of GWPH have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GWPH within range of triggering a big breakout trade post-earnings.

If you're bullish on GWPH, 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 $82.64 to $83.96 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 461,592 shares. If that breakout kicks off post-earnings, then GWPH will set up to re-test or possibly take out its next major overhead resistance levels at $90 to $93, or even $96 a share.

I would avoid GWPH or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day at $76.35 and its 200-day at $76.30 a share with high volume. If we get that move, then GWPH will set up to re-test or possibly take out its next major support levels at $70 to around $65 a share.

Bazaarvoice

Another earnings short-squeeze prospect is social commerce solutions provider Bazaarvoice  (BV) , which is set to release numbers on next Tuesday after the market close. Wall Street analysts, on average, expect Bazaarvoice to report revenue of $46.67 million.

The current short interest as a percentage of the float for Bazaarvoice is very high at 12.3%. That means that out of 54.4 million shares in the tradable float, 6.70 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally post-earnings if the bears get forced into covering some of their positions.

From a technical perspective, BV is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending slightly over the last month and change, with shares moving higher from its low of $6.66 to its recent high of $7.80 a share. During that uptrend, shares of BV have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BV within range of triggering a near-term breakout trade post-earnings.

If you're bullish on BV, 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 $7.80 to $8.23 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 332,938 shares. If that breakout materializes post-earnings, then BV will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $8.73 a share. Any high-volume move above that level will then push shares of BV into new 52-week-high territory, which is bullish technical price action. Some possible upside targets are $10 to $11 a share.

I would simply avoid BV 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 its 50-day moving average of $7.35 to $7.30 a share with high volume. If we get that move, then BV will set up to re-test or possibly take out its next major support level at $6.93 to $6.66 a share, or even below $6 a share.

Isle of Capri Casinos

My final earnings short-squeeze play is resorts and casinos player Isle of Capri Casinos  (ISLE) , which is set to release numbers on next Tuesday before the market open. Wall Street analysts, on average, expect Isle of Capri Casinos to report revenue of $232.91 million on a loss of 4 cents per share.

The current short interest as a percentage of the float for Isle of Capri Casinos is pretty high at 12.4%. That means that out of the 5.97 million shares in the tradable float, 745,000 shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of ISLE could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, ISLE is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has just started to spike back above its 50-day at $7.18 a share. That spike is starting to push shares of ISLE within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on ISLE, 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 its 200-day of $7.62 to $7.80 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 167,600 shares. If that breakout develops post-earnings, then ISLE will set up to re-test or possibly take out its next major overhead resistance levels at $8.67 to $9 a share. Any high-volume move above $9 will then give ISLE a chance to re-fill some of its previous gap-down-day zone from July that started at $10 a share.

I would avoid ISLE 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 $6.66 to $6.43 a share and $6.30 to its 52-week low of $6.25 a share with high volume. If we get that move, then ISLE will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $5.50 to $5 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.

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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