5 Stocks Set to Soar on Bullish Earnings

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.

Weight Watchers

My first earnings short-squeeze trade idea is weight management services player Weight Watchers  (WTW), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Weight Watchers to report revenue of $324.36 million on a loss of 19 cents per share.

The current short interest as a percentage of the float for Weight Watchers is extremely high at 41.3%. That means that out of the 27.06 million shares in the tradable float, 11.17 million shares are sold short by the bears. This is a huge short interest on a stock with a very small tradable float. Any bullish earnings news could easily set off a monster short-squeeze for shares of WTW post-earnings as the bears jump to cover some of their trades.

From a technical perspective, WTW is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $6.71 to its recent high of $8.77 a share. During that uptrend, shares of WTW have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WTW within range of triggering a big breakout trade post-earnings.

If you're bullish on WTW, 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 50-day moving average of $9.51 a share to more key resistance levels at $10.50 to $11 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.54 million shares. If that breakout materializes post-earnings, then shares of WTW will set up to re-test or possibly take out its next major overhead resistance level at around $14 a share.

I would simply avoid WTW 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 $8.32 to $7.50 a share with high volume. If we get that move, then WTW will set up to re-test or possibly take out its next major support level at its 52-week low of $6.71 a share.

Oasis Petroleum

Another potential earnings short-squeeze play is independent oil exploration and production player Oasis Petroleum  (OAS), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Oasis Petroleum to report revenue $262.05 million on earnings of 26 cents per share.

The current short interest as a percentage of the float for Oasis Petroleum is extremely high at 37.8%. That means that out of the 76.74 million shares in the tradable float, 29.05 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.9%, or by about 2.38 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of OAS could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, OAS is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently bounced notably higher right off some near-term support at $15.88 and right above its 50-day moving average of $15.37 a share with decent upside volume flows. That bounce is now quickly pushing shares of OAS 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 OAS, 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 $18.11 to $18.86 a share and then above more resistance at $19.63 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 9.87 million shares. If that breakout triggers post-earnings, then OAS will set up to re-test or possibly take out its next major overhead resistance levels at $23 to $25 a share.

I would simply avoid OAS or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term supports levels at $15.88 to its 50-day moving average of $15.37 a share with high volume. If we get that move, then OAS will set up to re-test or possibly take out its next major support levels at $14 to $12.25 a share.

Eclipse Resources

Another potential earnings short-squeeze candidate is independent oil exploration and production player Eclipse Resources  (ECR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Eclipse Resources to report revenue of $46.71 million on a loss of 12 cents per share.

The current short interest as a percentage of the float for Eclipse Resources is pretty high at 18.8%. That means that out of the 48.04 million shares in the tradable float, 9.05 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of ECR could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, ECR 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 been consolidating and trending sideways over the last two months, with shares moving between $5.30 on the downside and $6.50 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 ECR.

If you're bullish on ECR, 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 $6.50 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.40 million shares. If that breakout hits post-earnings, then ECR will set up to re-test or possibly take out its next major overhead resistance levels at $7.50 to $8.20 a share, or even $9 a share.

I would avoid ECR 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 $5.80 to $5.59 a share and then below $5.36 to $5.30 a share with high volume. If we get that move, then ECR will set up to re-test or possibly take out its next major support level at its 52-week low of $5.08 a share. Any high-volume move below $5.08 will then give ECR a chance to trend below $5 a share.

ChannelAdvisor

Another earnings short-squeeze prospect is software-as-a-service solutions player ChannelAdvisor  (ECOM), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect ChannelAdvisor to report revenue of $21.60 million on a loss of 34 cents per share.

The current short interest as a percentage of the float for ChannelAdvisor is very high at 17.9%. That means that out of 19.98 million shares in the tradable float, 3.58 million shares are sold short by the bear. This is a large short interest on a stock with a very low tradable float. Any bullish earnings news could set off a big short-squeeze for shares of ECOM post-earnings that forces the bears to cover some of their positions.

From a technical perspective, ECOM is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been consolidating and trending sideways over the two months and change, with shares moving between $9.02 on the downside and $11.90 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 ECOM.

If you're bullish on ECOM, then I would wait until after its report and look for long-biased trades if this stock manages to break out above key near-term overhead resistance levels at $11.42 to $11.90 with high volume. Look for volume on that move that hits near or above its three-month average volume of 361,379 shares. If that breakout gets started post-earnings, then ECOM will set up to re-fill some of its previous gap-down-day zone from January that started near $22 a share.

I would simply avoid ECOM 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 $9.65 to $9.02 a share with high volume. If we get that move, then ECOM will set up to re-test or possibly take out its next major support level at its 52-week low of $8.22 a share. Any high-volume move below $8.22 will then give ECOM a chance to trend below $8 a share.

Papa Murphy's

My final earnings short-squeeze trading opportunity is specialty eateries player Papa Murphy's  (FRSH), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Papa Murphy's to report revenue of $30.03 million on earnings of 14 cents per share.

The current short interest as a percentage of the float for Papa Murphy's is extremely high at 26.6%. That means that out of the 8.16 million shares in the tradable float, 2.17 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.9%, or by about 81,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of FRSH could easily explode sharply higher post-earnings as the bears move quick to cover some of their positions.

From a technical perspective, FRSH 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 six months, with shares moving higher from its low of $8.68 to its recent high of $20 a share. During that uptrend, shares of FRSH have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FRSH 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 FRSH, 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 $18.21 to $19.75 a share and then above its all-time high of $20 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 248,668 shares. If that breakout develops post-earnings, then FRSH will set up to enter new all-time-high territory above $20 a share, which is bullish technical price action. Some possible upside targets off that move are $25 to $30 a share.

I would avoid FRSH 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 $16.67 to its 50-day moving average of $16.31 a share and then below more support at $16.05 a share with volume. If we get that move, then FRSH will set up to re-test or possibly take out its next major support levels at $13 to $12 a share.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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