5 Stocks Set to Soar on Bullish Earnings: Ultra Petroleum, Sizmek 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, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.

Sizmek

My first earnings short-squeeze trade idea is online advertising player Sizmek (SZMK) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Sizmek to report revenue of $47.50 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for Sizmek is very high at 15.2%. That means that out of the 22.13 million shares in the tradable float, 3.36 million shares are sold short by the bears. This is large short interest and low float situation stock. If the bulls get the earnings news they're looking for, then shares of SZMK could easily rip sharply higher post-earnings as the bears move fast to cover some of their short positions.

From a technical perspective, SZMK is currently trending just above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last four months and change, with shares moving higher from its low of $4.85 to its recent high of $6.85 a share. During that uptrend, shares of SZMK have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SZMK within range of triggering a big breakout trade post-earnings.

If you're bullish on SZMK, 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 $6.85 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 168,234 shares. If that breakout triggers post-earnings, then shares of SZMK will set up to re-fill its previous gap-down-day zone from last October that started near $7.50 a share. If that gap gets filled with volume and SZMK takes out its 200-day moving average at $7.71 a share post-earnings, then this stock could easily make a run at $9 to $10 a share.

I would simply avoid SZMK 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 at $6.23 share and below more key near-term support levels at $5.83 to $5.67 and then $5.46 a share with high volume. If we get that move, then SZMK will set up to re-test or possibly take out its 52-week low of $4.85 a share.

Basic Energy Services

Another potential earnings short-squeeze trade play is oil and natural gas well site services provider Basic Energy Services (BAS) , which is set to release its numbers on Thursday after the market close Wall Street analysts, on average, expect Basic Energy Services to report revenue $392.91 million on earnings of 19 cents per share.

The current short interest as a percentage of the float for Basic Energy Services is very high at 15.3%. That means that out of the 38.40 million shares in the tradable float, 5.88 million shares are sold short by the bears. This is large short interest on a stock with a relatively low tradable float. If Basic Energy Services can deliver the earnings news the bulls are looking for, then shares of BAS could easily explode sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, BAS is currently trending just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has formed a major bottoming chart pattern over the last two months, with shares finding buying interest at $5.01, $5.26 and $5.31 a share. Following that bottom, shares of BAS have started to uptrend with the stock moving back above its 50-day moving average. That move has now pushed shares of BAS within range of triggering a major breakout trade above some key near-term overhead resistance levels post-earnings.

If you're in the bull camp on BAS, 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 $7.80 to $8.18 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 3.61 million shares. If that breakout develops post-earnings, then BAS will set up to re-test or possibly take out its next major overhead resistance levels at $10 to around $12 a share.

I would simply avoid BAS 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 $6.34 a share with high volume. If we get that move, then BAS will set up to re-test or possibly take out its next major support levels at $5.31 to its 52-week low of $5.01 a share.

Rocket Fuel

Another potential earnings short-squeeze candidate is artificial-intelligence digital advertising solutions provider Rocket Fuel (FUEL) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Rocket Fuel to report revenue of $147.88 million on a loss of 21 cents per share.

The current short interest as a percentage of the float for Rocket Fuel is extremely high at 18%. That means that out of the 24.76 million shares in the tradable float, 4.45 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.1%, or by about 214,037 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of FUEL could easily trend sharply higher post-earnings as the bears jump to cover some of their trades.

From a technical perspective, FUEL is currently trending below both its 50-day and 200-day moving averages, which I bearish. This stock has been downtrending over the last two months, with shares falling from its high of $18.84 to its new all-time low of $12.27 a share. During that move, shares of FUEL have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of FUEL have now started to rebound off that $12.27 low and it's quickly moving within range of triggering a big breakout trade post-earnings.

If you're bullish on FUEL, 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 $14.42 to its 50-day moving average of $14.83 with high volume. Look for volume on that move that hits near or above its three-month average action of 640,948 shares. If that breakout develops post-earnings, then FUEL will set up to re-test or possibly take out its next major overhead resistance levels at $16.82 to $18.84 a share, or even its 200-day moving average of $19.01 a share.

I would avoid FUEL 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 $13 to its all-time low of $12.27 a share with high volume. If we get that move, then FUEL will set up to enter new all-time-low territory, which is bearish. Some possible downside targets off that move are $10 to $9 a share.

Arista Networks

Another earnings short-squeeze prospect is cloud networking solutions provider Arista Networks (ANET) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Arista Networks to report revenue of $166.59 million on earnings of 38 cents per share.

The current short interest as a percentage of the float for Arista Networks is very high at 16.3%. That means that out of 27.67 million shares in the tradable float, 4.52 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.7%, or by about 159,655 shares. If the bears get caught pressing their bets into a strong quarter, then shares of ANET could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, ANET is currently trending below both its 50-day moving average, which is bearish. This stock has been trending sideways over the last two months and change, with shares moving between $56.11 on the downside and $69.40 on the upside. Shares of ANET have recently started to spike higher and rebound off that $56.11 low and it's beginning to move within range of triggering a big breakout trade above the upper-end of its sideways trading chat pattern post-earnings.

If you're bullish on ANET, 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 $65.95 to $66.87 a share and then above $69.40 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 568,389 shares. If that breakout develops post-earnings, then ANET will set up to re-test or possibly take out its next major overhead resistance level at $74.50 to $77.90 a share, or even around $80 a share.

I would simply avoid ANET 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 $60 to $56.11 a share with high volume. If we get that move, then ANET will set up re-test or possibly take out its next major support level at its 52-week low of $55 a share. Any high-volume move below $55 will then give ANET a chance to tag $50 to $45 a share, or even $40 a share.

Ultra Petroleum

My final earnings short-squeeze trade idea is independent oil and gas exploration and development player Ultra Petroleum (UPL) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Ultra Petroleum to report revenue of $317.23 million on earnings of 51 cents per share.

The current short interest as a percentage of the float for Ultra Petroleum is extremely high at 20.5%. That means that out of the 150.30 million shares in the tradable float, 30.83 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.2%, or by about 945,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of UPPL could easily trend sharply higher post-earnings as the bears scramble to cover some of their trades.

From a technical perspective, UPL is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at $11.46 to $11.55 a share. Following that bottom, shares of UPL have ripped higher back above its 50-day moving average. That move has now pushed shares of UPL within range of triggering a big breakout trade above some key near-term overhead resistance levels post-earnings.

If you're in the bull camp on UPL, 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 $15.86 a share to just above $17 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.63 million shares. If that breakout starts post-earnings, then UPL will set up to re-test or possibly take out its next major overhead resistance levels at $19 to $21 a share, or even its 200-day moving average of $22.41 a share.

I would avoid UPL 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 $13.96 a share to more support at $13.14 a share with high volume. If we get that move, then UPL will set up to re-test or possibly take out its next major support level at $11.55 to $11.46 a share, or its 52-week low of $11.31 a share.

-- 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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