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.

Synnex

SNX Chart SNX data by YCharts

My first earnings short-squeeze trade idea is business process services player Synnex (SNX), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expectSynnex to report revenue of $3.42 billion on earnings of $1.53 per share.

The current short interest as a percentage of the float for Synnex is pretty high at 10.3%. That means that out of the 28.71 million shares in the tradable float, 2.96 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.6%, or by around 234,00 shares. If bears get caught pressing their bets into a bullish quarter, then shares of Synnex could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Synnex 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 $70.03 to its intraday on Monday of $85.25 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish onSynnex, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its new 52-week high of $85.25 a share (or above Thursday's intraday if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 209,717 shares. If that breakout triggers post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $90 to $95 a share, or even $100 to $110 a share.

I would simply avoid Synnex 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 $80.45 a share and then below more support at $80.30 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $75 to its 200-day moving average of $73.78 a share.

Micron Technology

MU Chart MU data by YCharts

Another potential earnings short-squeeze play is semiconductor solutions provider Micron Technology  (MU), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue $3.92 billion on earnings of 58 cents per share.

The current short interest as a percentage of the float for Micron Technology is notable at 6.1%. That means that out of the 1.07 billion shares in the tradable float, 65.80 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then this stock could easily spike sharply higher post-earnings as the bears jump to cover some of their positions.

From a technical perspective, Micron Technology 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 five months, with shares moving lower from its high of $32.84 to its recent low of $23.70 a share. During that downtrend, shares of Micron Technology have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to spike higher off that $23.70 low and is beginning to move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Micron Technology, 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 $24.97 to $26 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 22.79 million shares. If that breakout develops post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $27.17 to $29 a share, or even $30 to $32 a share.

I would simply avoid Micron Technology 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 $23.70 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $21 to $20 a share, or even $19 a share.

Bed Bath & Beyond

BBBY Chart BBBY data by YCharts

Another potential earnings short-squeeze candidate is home furnishing stores player Bed Bath & Beyond  (BBBY), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Bed Bath & Beyond to report revenue of $2.74 billion on earnings of 94 cents per share.

The current short interest as a percentage of the float for Bed Bath & Beyond is pretty high at 8.8%. That means that out of the 164.49 million shares in the tradable float, 14.62 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.6%, or by 1.03 million shares. If bears get caught pressing their bets into a strong quarter, then shares of Bed Bath & Beyond could easily spike sharply higher post-earnings as the bears scramble to cover some of their trades.

From a technical perspective, Bed Bath & Beyond is currently trending just below both its 50-day and 200-day moving average, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $68.85 to its recent high of $71.68 a share. During that uptrend, shares of Bed Bath & Beyond has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Bed Bath & Beyond, 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 $71.68 to its $72 a share and then above more major resistance at $74.21 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.16 million shares. If that breakout gets started post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $78 to $79 a share, or even north of $80 a share.

I would avoid Bed Bath & Beyond 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 $70 to $68.75 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $65 to $62 a share.

Finish Line

FINL Chart FINL data by YCharts

Another earnings short-squeeze prospect is athletic shoes specialty retailer Finish Line  (FINL), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Finish Line to report revenue of $430.81 million on earnings of 24 cents per share.

The current short interest as a percentage of the float for Finish Line is very high at 13.8%. That means that out of 42.56 million shares in the tradable float, 5.34 million shares are sold short by the bear. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily set off a large short-squeeze for shares of Finish Line post-earnings that put the bears on the run.

From a technical perspective, Finish Line is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last four months, with shares moving higher from its low of $23.14 to its recent high of $27.36 a share. During that move, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Finish Line within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Finish Line, 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 $27.36 to $28.81 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 865,572 shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its 52-week high of $31.90 a share.

I would simply avoid Finish Line or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 200-day moving average of $25.55 and then below more key support levels at $25 to $24 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $23 to $22 a share.

Worthington Industries

WOR Chart WOR data by YCharts

My final earnings short-squeeze trading opportunity is metals manufacturing player Worthington Industries  (WOR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Worthington Industries to report revenue of $835.87 million on earnings of 46 cents per share.

The current short interest as a percentage of the float for Worthington Industries stands at 3%. That means that out of the 46.87 million shares in the tradable float, 1.50 million shares are sold short by the bears. This isn't a large short interest, but it's more than enough to spark a decent short-covering rally post-earnings if Worthington Industries produces the earnings news the bulls are looking for.

From a technical perspective, Worthington Industries is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last four months, with shares moving between $24.79 on the downside and $28.65 on the upside. This stock has recently started to spike a bit higher off the lower-end of that range and it's beginning to trend close to triggering a big breakout trade above the upper-end of its recent sideways trading chart pattern.

If you're in the bull camp on Worthington Industries, 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 $28.23 to $28.65 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 323,258 shares. If that breakout triggers post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $31.23 to $33 a share, or even $35 a share.

I would avoid Worthington Industries 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 $26.25 to $25.73 a share and then below $24.79 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $23.70 to $20 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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