5 Stocks Everyone Hates but You Should Love

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.

Short-squeeze candidates are something that I tweet about on a regular basis. These are also the exact type of stocks that I love to trade and alert to my subscribers in real-time.

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.

Pure Storage

My first earnings short-squeeze play is enterprise data storage platform player Pure Storage  (PSTG) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pure Storage to report revenue of $138.13 million on a loss of 23 cents per share.

The current short interest as a percentage of the float for Pure Storage is extremely high at 58.5%. That means that out of the 27.37 million shares in the tradable float, 17.04 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Pure Storage could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Pure Storage is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $13.46 to $13.76 a share. Following that potential bottom, this stock has now started to spike higher and move back above both its 50-day moving average of $14.02 a share and its 20-day moving average of $14.28 a share. That jump to the upside is now quickly pushing shares of Pure Storage within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Pure Storage, 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 $14.96 to $15.02 a share and then above more key resistance at $15.35 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.22 million shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $16.40 to $17, or even its 52-week high of $20.60 a share.

I would simply avoid Pure Storage or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $13.76 to $13.46 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 $12.50 to $12.10, or even its 52-week low of $11.05 a share.

America's Car-Mart

Another potential earnings short-squeeze trade idea is automotive retailer America's Car-Mart  (CRMT) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect America's Car-Mart to report revenue $149.13 million on earnings of 58 cents per share.

The current short interest as a percentage of the float for America's Car-Mart is rather high at 13.6%. That means that out of the 7.86 million shares in the tradable float, 1.07 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.6%, or by about 16,000 shares. If the bears get caught pressing their bets into a strong 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, America's Car-Mart is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $22.50 to $22.35 a share. Following that potential bottom, shares of America's Car-Mart have now started to spike modestly higher and move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on America's Car-Mart, then I would wait until after its report and look for long-biased trades if this stock manages to break above some near-term resistance levels at $23.50 to $24 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 66,061 shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $24.81 to its 50-day moving average of $25.05, or even $26 to $28 a share.

I would simply avoid America's Car-Mart 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 $22.35 to $21.56 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 52-week low of $20.67 a share. Any move below $20.67 will push this stock into new 52-week-low territory, which is bearish technical price action.

Dycom

Another potential earnings short-squeeze candidate is specialty contracting services player Dycom  (DY) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Dycom to report revenue of $597.83 million on earnings of 74 cents per share.

The current short interest as a percentage of the float for Dycom is very high at 17.4%. That means that out of the 27.57 million shares in the tradable float, 4.82 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Dycom could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Dycom 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 off its low of $47.10 a share to its recent high of $73.70 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Dycom within range of triggering a big breakout trade post-earnings.

If you're bullish on Dycom, 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 $73.70 to $74.79 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 652,567 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 $77.50 to $80, or even $85 a share.

I would avoid Dycom or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 200-day moving average of $70.20 a share and its 20-day moving average of $69.88 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 $67.43 to its 50-day moving average of $66.65, or even $66.09 to $62 a share.

Bristow Group

Another earnings short-squeeze prospect is helicopter services to the offshore energy industry player Bristow Group  (BRS) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Bristow Group to report revenue of $407.14 million on earnings of 51 cents per share.

The current short interest as a percentage of the float for Bristow Group is pretty high at 13.4%. That means that out of 34.59 million shares in the tradable float, 4.66 million shares are sold short by the bear.

From a technical perspective, Bristow Group is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly over the last month and change, with shares moving lower off its high of $23.62 a share to its recent low of $13.68 a share. During that downtrend, this stock has been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on Bristow 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 levels at $15 to $16.05 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 687,262 shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $18.35 to its 50-day moving average of $18.87, or even $21 to $23 a share.

I would simply avoid Bristow Group or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $13.68 to $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 level at its 52-week low of $11.02 a share.

Lions Gate Entertainment

My final earnings short-squeeze trading opportunity is motion picture production player Lions Gate Entertainment  (LGF) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Lions Gate Entertainment to report revenue of $741.85 million on a loss of 1 cent per share.

The current short interest as a percentage of the float for Lions Gate Entertainment is pretty high at 13.3%. That means that out of the 97.69 million shares in the tradable float, 13.04 million shares are sold short by the bears.

From a technical perspective, Lions Gate Entertainment is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last few weeks, with shares moving lower off its high of $22.62 a share to its recent low of $19.37 a share. During that downtrend, shares of Lions Gate Entertainment have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on Lions Gate Entertainment 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 $20 a share and then above both its 20-day moving average of $20.89 a share and its 50-day moving average of $21 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.14 million shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $22.62 to $23.13, or even $24.38 to $27 a share.

I would avoid Lions Gate Entertainment or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support levels at $19.37 to $19.14 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 levels at $17.87 to its 52-week low of $16.21 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.

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