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 very bullish technically 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.

 

Container Store Group

My first earnings short-squeeze play is storage and organization products player Container Store Group  (TCS - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Container Store Group to report revenue of $197.71 million on earnings of 7 cents per share.

The current short interest as a percentage of the float for Container Store Group is extremely high at 19.9%. That means that out of the 16.94 million shares in the tradable float, 3.37 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.6%, or by about 295,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily spike sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Container Store Group 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 few weeks, with shares moving higher from its low of $12.58 to its intraday high on Monday of $15.41 a share. During that uptrend, shares of Container Store Group have 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 Container Store Group, 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 $16.05 to its 50-day moving average of $16.43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 233,123 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $17.70 to its 200-day moving average of $18.13, or even $18.86 to $19.20 a share. If those levels get taken out with volume, then this stock could easily trend towards $22 to $23 a share.

I would simply avoid Container Store Group 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 $14 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 level at its all-time low of $12.58 a share.

Domino's Pizza

Another potential earnings short-squeeze trade idea is pizza delivery player Domino's Pizza  (DPZ - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Domino's Pizza to report revenue $486.31 million on earnings of 74 cents per share.

The current short interest as a percentage of the float for Domino's Pizza stands at 6.8%. That means that out of the 51.06 million shares in the tradable float, 3.48 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.4%, or by about 116,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Domino's Pizza is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has recently been attempting to carve out a double bottoming chart pattern, since shares have found some buying interest at $103.03 to $103.50 a share. Following that potential bottom, shares of Domino's Pizza have now started to spike higher back above its 200-day moving average and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on Domino's Pizza, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $109.50 to its 50-day moving average of $109.73 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 536,314 shares. If that breakout kicks off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $114.70 to $115.94 a share. Any high-volume move above those levels will then give this stock a chance to make a run at its 52-week high of $119.73 a share.

I would simply avoid Domino's Pizza 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 $105.56 a share and then back below those recent double bottom support levels 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 $98.72 to $97.46, or even $94 a share.


International Speedway

Another potential earnings short-squeeze candidate is motorsports themed entertainment activities promoter International Speedway  (ISCA - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect International Speedway to report revenue of $121.07 million on a loss of 6 cents per share.

The current short interest as a percentage of the float for International Speedway stands at 4%. That means that out of the 32.28 million shares in the tradable float, 1.02 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 16.3%, or by about 144,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily surge sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, International Speedway 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 few weeks, with shares moving higher from its low of $30.99 to its intraday high on Monday of $32.81 a share. During that uptrend, shares of International Speedway have 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 big breakout trade post-earnings.

If you're bullish on International Speedway, 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 $33.34 to its 200-day moving average of $33.52 a share and then above more resistance at $34.17 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 123,464 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 $35.66 to $36.50, or even $37.75 to its 52-week high of $38.27 a share.

I would avoid International Speedway or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $32.04 a share and then below more key near-term support at $30.99 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 $28.96 to its 52-week low of $28.09, or even $25.50 a share.

 


Acuity Brands

Another earnings short-squeeze prospect is diversified electronics player Acuity Brands  (AYI - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Acuity Brands to report revenue of $754.85 million on earnings of $1.62 per share.

The current short interest as a percentage of the float for Acuity Brands is notable at 3.6%. That means that out of 42.72 million shares in the tradable float, 1.54 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 8.8%, or by about 253,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Acuity Brands is currently trending above its 200-day moving average and well below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $168.33 to its intraday high on Monday of $181.30 a share. During that uptrend, shares of Acuity Brands have 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 big breakout trade post-earnings.

If you're bullish on Acuity Brands, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $185.37 to more resistance at $186 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 461,692 shares. If that breakout gets set off 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 $194.35 to $197.53, or even $204.42 a share.

I would simply avoid Acuity Brands 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 $174.13 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 $168.33 to around $160 a share.

 


NovaGold Resources

My final earnings short-squeeze trading opportunity is gold mining player NovaGold Resources  (NG) , which is set to release numbers on Tuesday after the market close. There are currently no Wall Street estimates available for this company.

The current short interest as a percentage of the float for NovaGold Resources is pretty high at 9%. That means that out of the 171.54 million shares in the tradable float, 15.59 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of NovaGold Resources could easily rip sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, NovaGold Resources is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways and consolidating for the last two months, with shares moving between $3.20 on the downside and $3.88 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 NovaGold Resources.

If you're in the bull camp on NovaGold Resources, 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 $3.86 to $3.88 a share and then above more resistance at $3.96 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.39 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 $4.18 to its 52-week high of $4.25 a share. Any high-volume move above those levels will then give this stock a chance to make a run at its next major resistance levels at $4.40 to $4.60 a share.

I would avoid NovaGold Resources 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 $3.45 to $3.39 a share and then below more support at $3.20 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 $2.91 to $2.65 a share.

 

 

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