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

Tesla Motors

My first earnings short-squeeze trade idea is electrical car maker and energy storage systems player Tesla Motors  (TSLA), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Tesla Motors to report revenue of $1.04 billion on a loss of 50 cents per share.

The current short interest as a percentage of the float for Tesla Motors is 27.7%. That means that out of the 96.88 million shares in the tradable float, 26.86 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3%, or by about 782,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of TSLA could easily jump sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, TSLA 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 or so, with shares moving higher from its low of $181.40 to its recent high of $238.75 a share. During that uptrend, shares of TSLA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TSLA within range of triggering a big breakout trade post-earnings.

If you're bullish on TSLA, 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 $235 to $238.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 5.32 million shares. If that breakout materializes post-earnings, then shares of TSLA will set up to re-test or possibly take out its next major overhead resistance levels at $250 to $260 a share, or even $265.50 to $275 a share.

I would simply avoid TSLA 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 200-day moving average of $227.08 to $220.40 a share with high volume. If we get that move, then TSLA will set up to re-test or possibly take out its next major support level at its 50-day moving average of $204.20 to $190 a share.

Air Methods

Another potential earnings short-squeeze play is air medical emergency transport services and systems player Air Methods  (AIRM), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Air Methods to report revenue $234.89 million on earnings of 34 cents per share.

The current short interest as a percentage of the float for Air Methods is extremely high at 28.3%. That means that out of the 33.49 million shares in the tradable float, 9.48 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.4%, or by about 129,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of AIRM could easily rip sharply higher post-earnings as the bears run to cover some of their trades.

From a technical perspective, AIRM is currently trending below both its 50-day and 200-day moving averages, which is bearish. this stock has recently formed a double bottom chart pattern at $44.12 to $44.51 a share. Following that bottom, shares of AIRM have started to trend modestly higher here off those support levels and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on AIRM, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day at $47.54 to its 200-day at $48.71 and then above some key near-term overhead resistance levels at $48.91 to $49.77 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 501,149 shares. If that breakout begins post-earnings, then AIRM will set up to re-test or possibly take out its next major overhead resistance levels $54.28 to $54.98 a share, or even $56 to $59 a share.

I would simply avoid AIRM or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below those double bottom support levels at $44.51 to $44.12 a share with high volume. If we get that move, then AIRM will set up to re-test or possibly take out its next major support level at its 52-week low of $40.31 a share.

JD.com

Another potential earnings short-squeeze candidate is China-based online direct sales player JD.com  (JD), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect JD.com to report revenue of $35.65 billion on earnings of 2 cents per share.

The current short interest as a percentage of the float for JD.com is notable at 3.45%. That means that out of the 411.75 million shares in the tradable float, 13.28 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.9%, or by about 912,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of JD could easily rip sharply higher post-earnings as the bears scramble to cover some of their trades.

From a technical perspective, JD 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 five months, with shares moving higher from its low of $21.78 to its recent high of $36.75 a share. During that uptrend, shares of JD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of JD within range of triggering a major breakout trade post-earnings.

If you're bullish on JD, 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 $36.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 8.30 million shares. If that breakout develops post-earnings, then JD will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $40 to $45 a share, or even $50 to $55 a share.

I would avoid JD 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 $32.71 to $32.65 a share with high volume. If we get that move, then JD will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $30.65 to $29.01 a share, or even its 200-day moving average of $27.42 a share.

Insys Therapeutics

Another earnings short-squeeze prospect is specialty pharmaceutical player Insys Therapeutics  (INSY), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Insys Therapeutics to report revenue of $70.93 million on earnings of 38 cents per share.

The current short interest as a percentage of the float for Insys Therapeutics is extremely high at 55.8%. That means that out of 11.55 million shares in the tradable float, 6.44 million shares are sold short by the bear. This is a monster short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a huge short-squeeze for shares of INSY post-earnings that forces the bears to cover some of their bets.

From a technical perspective, INSY is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at some previous support of $51.45 a share to some near-term support at $51.34 a share. Shares of INSY have now started to trend higher off those support levels and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're bullish on INSY, 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 of $57 a share to its 50-day moving average of $58.03 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 424,538 shares. If that breakout begins post-earnings, then INSY will set up to re-test or possibly take out its next major overhead resistance levels at $62 to its all-time high of $67.87 a share. Any high-volume move above $67.87 will then give INSY a chance tag or trend north of $70 a share.

I would simply avoid INSY 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 $52.50 to $51.34 a share with high volume. If we get that move, then INSY will set up to re-test or possibly take out its next major support levels at $45 to its 200-day moving average of $43.83 a share, or even $40 to $38 a share.

Dealertrack Technologies

My final earnings short-squeeze trading opportunity is Web-based automotive retail software solutions and services player Dealertrack Technologies  (TRAK), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Dealertrack Technologies to report revenue of $248.49 million on earnings of 18 cents per share.

The current short interest as a percentage of the float for Dealertrack Technologies is very high at 14.7%. That means that out of the 53.32 million shares in the tradable float, 7.84 million shares are sold short by the bears. If this company can report the earnings news the bulls are looking for, then shares of TRAK could easily spike sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, TRAK 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 a bit over the last month, with shares moving higher from its low of $36.85 to its intraday high on Monday of $41.12 a share. During that uptrend, shares of TRAK have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed TRAK within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on TRAK, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $42.17 a share and then above more near-term overhead resistance at $43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 496,013 shares. If that breakout hits post-earnings, then TRAK will set up to re-test or possibly take out its next major overhead resistance levels at $45.20 to $46.50 a share, or even $49 to $50 a share.

I would avoid TRAK 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 $39.18 a share and then below more near-term support at $38.84 a share with volume. If we get that move, then TRAK will set up to re-test or possibly take out its next major support levels at $37.35 to its 52-week low of $36.43 a share, or even $32.50 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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