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.

ViaSat

My first earnings short-squeeze trade idea is communications equipment player ViaSat  (VSAT), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect ViaSat to report revenue of $363.73 million on earnings of 42 cents per share.

The current short interest as a percentage of the float for ViaSat is pretty high at 12.8%. That means that out of the 28.03 million shares in the tradable float, 3.59 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news could easily trigger a monster short-squeeze for shares of VSAT post-earnings that forces the bears to cover some of their trades.

From a technical perspective, VSAT is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last month and change, with shares moving between $59 on the downside and $63.47 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of VSAT.

If you're bullish on VSAT, 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 $63 to $63.47 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 177,949 shares. If that breakout materializes post-earnings, then shares of VSAT will set up to re-test or possibly take out its next major overhead resistance levels at $66.50 to its 52-week high of $68.84 a share. Any high-volume move above $68.84 will then give VSAT a chance to tag or trend north of $70 a share.

I would simply avoid VSAT 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 $60.18 a share to more support at $59.70 a share with high volume. If we get that move, then VSAT will set up to re-test or possibly take out its next major support levels at $57.59 to $55 a share, or even $52 a share.

Qihoo 360 Technology

Another potential earnings short-squeeze play is China-based Internet services player Qihoo 360 Technology  (QIHU), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Qihoo 360 Technology to report revenue $378.12 million on earnings of 49 cents per share.

The current short interest as a percentage of the float for Qihoo 360 Technology is pretty high at 7.3%. That means that out of the 91.15 million shares in the tradable float, 7.11 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 268,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of QIHU could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, QIHU is currently trending above its 50-day moving average and 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 $53.25 to its recent high of $59.84 a share. During that move, shares of QIHU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of QIHU within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on QIHU, 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 $60 to $63 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 3.16 million shares. If that breakout triggers post-earnings, then QIHU will set up to re-test or possibly take out its next major overhead resistance levels $65.16 to its 200-day moving average of $65.66 a share. Any high-volume move above those levels will then give QIHU a chance to make a run at $70 to $75 a share.

I would simply avoid QIHU 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 $55.32 to $53.25 a share with high volume. If we get that move, then QIHU will set up to re-test or possibly take out its next major support levels at $49.63 to $45 a share.

The Fresh Market

Another earnings short-squeeze candidate is specialty grocery store player The Fresh Market  (TFM), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect The Fresh Market to report revenue of $473.96 million on earnings of 49 cents per share.

The current short interest as a percentage of the float for The Fresh Market is extremely high at 21.4%. That means that out of the 40.44 million shares in the tradable float, 9.33 million shares are sold short by the bears. This is a high short-interest and low-float situation stock. If this company can deliver the earnings news the bulls are looking for, then shares of TFM could easily spike sharply higher post-earnings as the bears are forced to cover some of their bets.

From a technical perspective, TFM is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last two months, with shares sliding lower from its high of $41.69 to its recent low of $32.85 a share. During that downtrend, shares of TFM have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of TFM have now started to bounce off that $32.85 low and it's beginning to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on TFM, 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 $35 to $36 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 638,634 shares. If that breakout develops post-earnings, then TFM will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $37.16 to its 50-day moving average of $38.49 a share, or even $42 a share.

I would avoid TFM 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 $32.85 a share with high volume. If we get that move, then TFM will set up to re-test or possibly take out its next major support levels at $32.20 to $29 a share, or even its 52-week low of $28.60 a share.

Kirkland's

Another earnings short-squeeze prospect is home decor and gifts specialty retailer Kirkland's  (KIRK), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Kirkland's to report revenue of $117.68 million on earnings of 11 cents per share.

The current short interest as a percentage of the float for Kirkland's is notable at 7.1%. That means that out of 14.51 million shares in the tradable float, 1.10 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 4%, or by about 42,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of KIRK could easily soar sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, KIRK is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has just started to bounce higher right off its 50-day moving average of $23.71 a share. That bounce is starting to push shares of KIRK within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on KIRK, 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 $25 to its 52-week high of $26.79 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 143,787 shares. If that breakout gets underway post-earnings, then KRK will set up to tag or trend north of $30 a share.

I would simply avoid KIRK 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 $23.71 a share to some more near-term support levels at $22.18 to $21.76 a share with high volume. If we get that move, then KIRK will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $21.19 to $19 a share, or even $18 a share.

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