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.

Nimble Storage

My first earnings short-squeeze play is flash-optimized storage platform player Nimble Storage  (NMBL), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Nimble Storage to report revenue of $69.77 million on a loss of 13 cents per share.

The current short interest as a percentage of the float for Nimble Storage is very high at 17%. That means that out of the 48.24 million shares in the tradable float, 8.20 million shares are sold short by the bears. This is a large short interest on a stock with a reasonably low tradable float. Any bullish earnings news could easily set off a big short-squeeze for shares of NMBL post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, NMBL 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 $20.82 to its recent high of $26.44 a share. During that uptrend, shares of NMBL have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NMBL within range of triggering a big breakout trade post-earnings.

If you're bullish on NMBL, 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 $26.44 to $27.61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 926,617 shares. If that breakout develops post-earnings, then shares of NMBL will set up to re-test or possibly take out its next major overhead resistance levels at $29 to its 52-week high of $31.66 a share. Any high-volume move above $31.66 will then give NMBL a chance to tag $35 to $37 a share.

I would simply avoid NMBL 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 $25.65 a share to its 50-day moving average of $24.07 a share with high volume. If we get that move, then NMBL will set up to re-test or possibly take out its next major support levels at $22 to $20.82 a share, or even $19 a share.

21Vianet Group

Another potential earnings short-squeeze trading opportunity is China-based information technology services player 21Vianet Group  (VNET), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect 21Vianet Group to report revenue $899.36 million on earnings of 21 cents per share.

The current short interest as a percentage of the float for 21Vianet Group is pretty high at 13.9%. That means that out of the 41.04 million shares in the tradable float, 5.70 million shares are sold short by the bears. If 21Vianet Group can produce the earnings news the bulls are looking for, then shares of VNET could easily rip sharply higher post-earnings as the bears move fast to cover some of their short trades.

From a technical perspective, VNET 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 $18.68 to its recent high of $20.02 a share. During that move, shares of VNET have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VNET within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on VNET, 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 $20.02 to $21 a share and then above more resistance at $22.86 to $23 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 669,023 shares. If that breakout hits post-earnings, then VNET will set up to re-test or possibly take out its next major overhead resistance levels at $28 to $30 a share, or even $32 a share.

I would simply avoid VNET 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 $19.03 a share to $18.68 a share with high volume. If we get that move, then VNET will set up to re-test or possibly take out its next major support levels at $16.50 to $15.79 a share, or even $15.10 to its 52-week low of $14.23 a share.

Michael Kors

Another potential earnings short-squeeze candidate is global luxury lifestyle brand player Michael Kors  (KORS), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Michael Kors to report revenue of $1.09 billion on earnings of 91 cents per share.

The current short interest as a percentage of the float for Michael Kors is notable at 5.9%. That means that out of the 182.68 million shares in the tradable float, 10.86 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.2%, or by about 818,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of KORS could easily jump sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, KORS 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 six months, with shares sliding lower from its high of over $78 a share to its recent low of $59.88 a share. During that downtrend, shares of KORS have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on KORS, 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 $62 to $64 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.83 million shares. If that breakout materializes post-earnings, then KORS will set up to re-test or possibly take out its next major overhead resistance levels at $66 to $68.82 a share, or even $70 to its 200-day moving average of $71.15 a share.

I would avoid KORS or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 52-week low of $59.88 a share with high volume. If we get that move, then KORS will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $50 to $46 a share.

Rentrak

Another earnings short-squeeze prospect is media measurement and information player Rentrak  (RENT), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Rentrak to report revenue of $29.96 million on a loss of 8 cents per share.

The current short interest as a percentage of the float for Rentrak is very high at 22.3%. That means that out of 10.11 million shares in the tradable float, 2.26 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 easily set off a monster short-squeeze for shares of RENT post-earnings that forces the bears to cover some of their bets.

From a technical perspective, RENT 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, with shares ripping sharply higher from its low of $46.64 to its recent high of $70.26 a share. During that uptrend, shares of RENT have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RENT within range of triggering a major breakout trade post-earnings.

If you're bullish on RENT, 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 $70.26 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 288,159 shares. If that breakout gets started post-earnings, then RENT will set up to re-fill some of its previous gap-down-day zone from February that started at $84.23 a share.

I would simply avoid RENT 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 $63.23 a share to $61.45 a share with high volume. If we get that move, then RENT will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $54.63 to $50 a share.

Workday

My final earnings short-squeeze trade idea is enterprise cloud applications provider Workday  (WDAY), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Workday to report revenue of $245 million on a loss of 8 cents per share.

The current short interest as a percentage of the float for Workday is pretty high at 9.5%. That means that out of the 105.86 million shares in the tradable float, 10.10 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.1%, or by about 1.09 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of WDAY could easily spike sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, WDAY is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last three months, with shares moving higher from its low of $80.82 to its recent high of $92.72 a share. During that uptrend, shares of WDAY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WDAY within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on WDAY, 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 $95.17 to its 52-week high of $97.40 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.47 million shares. If that breakout kicks off post-earnings, then WDAY will set up to enter new 52-week-high territory above $97.40 a share, which is bullish technical price action. Some possible upside targets off that mover are $110 to $115 a share.

I would avoid WDAY 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 $87.66 a share to its 200-day moving average of $86.44 a share with high volume. If we get that move, then WDAY will set up to re-test or possibly take out its next major support levels at $84 to $80 a share, or even $78 to $77 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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