5 Hated Earnings Stocks 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.

Fastenal

My first earnings short-squeeze trade idea is industrial equipment wholesale distributor Fastenal  (FAST) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Fastenal to report revenue of $1.02 billion on earnings of 48 cents per share.

The current short interest as a percentage of the float for Fastenal is pretty high at 11.6%. That means that out of the 287.80 million shares in the tradable float, 33.39 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Fastenal could easily soar sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Fastenal is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last few weeks, with shares moving higher off its low of $42.18 a share to its intraday high on Monday of $45.79 a share. During that uptrend, shares of Fastenal 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 Fastenal, 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 $46 to $46.60 a share and then above more key resistance levels at $48 to its 52-week high of $49.99 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.57 million shares. If that breakout fires off 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 breakout are $55 to $60, or even $65 a share.

I would simply avoid Fastenal or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day moving average of $45.28 a share and its 20-day moving average of $44.41 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 its 200-day moving average of $42.39 to $42.18, or even $40.70 to $38 a share.

Alcoa

Another potential earnings short-squeeze play is basic materials player Alcoa  (AA) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Alcoa to report revenue $5.20 billion on earnings of 10 cents per share.

The current short interest as a percentage of the float for Alcoa is pretty high at 10.1%. That means that out of the 1.23 billion shares in the tradable float, 124.61 million shares are sold short by the bears.

From a technical perspective, Alcoa is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways over the last two months and change, with shares moving between $8.78 on the downside and $10.17 on the upside. Any high-volume move above the upper-end of its recent sideways trending chat pattern post-earnings could trigger a big breakout trade for shares of Alcoa.

If you're in the bull camp on Alcoa, then I would wait until after its report and look for long-biased trades if this stock manages to break above some near-term overhead resistance at $10.17 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 23.77 million 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 $11 to its 52-week high of $11.50 a share. Any high-volume move above $11.50 will then push this stock into new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $12 to $13 a share.

I would simply avoid Alcoa or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 20-day moving average of $9.49 a share to its 200-day moving average of $9.15 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 $9 to $8.95 or $8.78 a share. Any high-volume move below $8.78 will then give this stock a chance to re-test its next major support levels at $8 to $7 a share.

Commerce Bancshares

Another potential earnings short-squeeze candidate is regional banking player Commerce Bancshares  (CBSH) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Commerce Bancshares to report revenue of $292.60 million on earnings of 68 cents per share.

The current short interest as a percentage of the float for Commerce Bancshares is notable at 6.7%. That means that out of the 82.56 million shares in the tradable float, 5.52 million shares are sold short by the bears.

From a technical perspective, Commerce Bancshares is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the last few weeks, with shares moving higher off its low of $44.56 a share to its recent high of $47.90 a share. During that uptrend, shares of Commerce Bancshares 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 Commerce Bancshares, 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 $47.90 to $48.85 a share and then above more key resistance at its 52-week high of $49.18 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 423,603 shares. If that breakout develops 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 $55 to $60 a share.

I would avoid Commerce Bancshares 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 its 20-day moving average of $46.92 a share to $45.74 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 $44.56 to its 200-day moving average of $44.08, or even $43 to $40 a share.

Adtran

Another earnings short-squeeze prospect is communication equipment player Adtran  (ADTN) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect ADTRAN to report revenue of $162.43 million on earnings of 20 cents per share.

The current short interest as a percentage of the float for ADTRAN is notable at 5.1%. That means that out of 48.67 million shares in the tradable float, 2.49 million shares are sold short by the bear.

From a technical perspective, ADTRAN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last few weeks, with shares moving higher off its low of $17.05 a share to its intraday high on Monday of $19.86 a share. During that uptrend, shares of ADTRAN have been consistently making 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 Adtran, 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 $20.05 to $20.45 a share and then above more key resistance at its 52-week high of $20.80 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 461,343 shares. If that breakout materializes 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 $23 to $23.50, or even $26 to $28 a share.

I would simply avoid Adtran 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 its 50-day moving average of $18.78 a share to its 20-day moving average of $18.50 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 its 200-day moving average of $17.66 to $17.05 a share or even $16 a share.

AngioDynamics

My final earnings short-squeeze trading opportunity is medical instruments and supplies player AngioDynamics  (ANGO) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect AngioDynamics to report revenue of $88.41 million on earnings of 16 cents per share.

The current short interest as a percentage of the float for AngioDynamics sits at 4.4%. That means that out of the 20.64 million shares in the tradable float, 911,000 shares are sold short by the bears.

From a technical perspective, AngioDynamics 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 six months, with shares moving higher off its low of $9.71 a share to its intraday high on Monday of $14.73 a share. During that uptrend, shares of AngioDynamics have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on AngioDynamics 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 $15 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 116,670 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 its 52-week high of $17 a share to $18, or even $19 a share.

I would avoid AngioDynamics 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 20-day moving average of $13.86 a share to its $13.50 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 its 50-day moving average of $12.95 a share to its 200-day moving average of $12.08 a share, or even $11.50 to $11 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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