These 5 Stocks Are Set to Soar on Bullish Earnings

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.

American Superconductor

My first earnings short-squeeze play is worldwide megawatt-scale solutions provider American Superconductor  (AMSC) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect American Superconductor to report revenue $13.39 million on a loss of 92 cents per share.

The current short interest as a percentage of the float for American Superconductor is extremely high at 20.2%. That means that out of the 10.36 million shares in the tradable float, 2.09 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 0.7%, or by about 14,000 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 move fast to cover some of their positions.

From a technical perspective, American Superconductor 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 off its low of $7.72 a share to its recent high of $9.63 a share. During that uptrend, shares of American Superconductor 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 American Superconductor, 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 $9.30 to $9.63 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 130,414 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 $11.05 to $11.82, or even its 52-week high of $12.50 a share.

I would simply avoid American Superconductor 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 $8.71 to $8.54 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 $8.08 to $7.72, or even its 200-day moving average of $7.37 to $6.50 a share.

ConforMIS

Another potential earnings short-squeeze trade idea is medical technology player ConforMIS  (CFMS) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect ConforMIS to report revenue $18.02 million on a loss of 35 cents per share.

The current short interest as a percentage of the float for ConforMIS is pretty high at 12.6%. That means that out of the 32.75 million shares in the tradable float, 4.14 million shares are sold short by the bears.

From a technical perspective, ConforMIS is currently trending above its 50-day moving average and well below its 200-day moving average , which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $6.62 to $6.66 a share. Following that potential double bottom, shares of ConforMIS have now started to spike higher and move back above both its 20-day moving average of $7.12 a share to its 50-day moving average of $7.20 a share. That move is now quickly pushing this stock within range of triggering a big breakout trade above some key near-term overhead resistance levels post-earnings.

If you're in the bull camp on ConforMIS, 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 levels at $7.62 to $8.45 a share with high volume Look for volume on that move that hits near or above its three-month average volume of 640,741 shares. If that breakout fires off post-earnings, then this stock will set up to re-fill some of its previous gap-down-day zone from May that started near $11 a share. If that gap gets filled with strong volume, then this stock could easily tag its next major overhead resistance levels at $12 to $13 a share.

I would simply avoid ConforMIS 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 $6.66 to $6.62 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 $6.05 to $5.90, or even $5 a share.

Bitauto Holdings

Another potential earnings short-squeeze candidate is China-based Internet information provider Bitauto Holdings  (BITA) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Bitauto Holdings to report revenue of $204.27 million on earnings of 30 cents per share.

The current short interest as a percentage of the float for Bitauto Holdings is pretty high at 11.7%. That means that out of the 27.75 million shares in the tradable float, 3.26 million shares are sold short by the bears.

From a technical perspective, Bitauto Holdings 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 three months and change, with shares moving higher off its low of $17.50 a share to its recent high of $29.19 a share. During that uptrend, shares of Bitauto Holdings 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 Bitauto Holdings, 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 $29.19 to $29.60 a share and then above some past resistance levels at $29.90 to $30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 623,506 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 $35 to its 52-week high of $37.31 a share.

I would avoid Bitauto Holdings 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 $27.73 a share to $27 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 $25.97 a share to its 200-day moving average of $25.05 a share, or even $23 to $22.50 a share.

Eagle Pharmaceuticals

Another earnings short-squeeze prospect is specialty pharmaceutical Eagle Pharmaceuticals  (EGRX) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Eagle Pharmaceuticals to report revenue of $40.80 million on earnings of 71 cents per share.

The current short interest as a percentage of the float for Eagle Pharmaceuticals is extremely high at 74.8%. That means that out of 5.39 million shares in the tradable float, 4.03 million shares are sold short by the bear.

From a technical perspective, Eagle Pharmaceuticals is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last two months, with shares moving higher off its low of $34.20 a share to its recent high of $50.32 a share. During that uptrend, shares of Eagle Pharmaceuticals 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 Eagle Pharmaceuticals, 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 $50.32 to $53.50 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 471,892 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 200-day moving average of $58.79 a share to $59.83, or even $60 to $65 a share.

I would simply avoid Eagle Pharmaceuticals 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 $46.48 a share to its 50-day moving average of $44.47 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 $42.33 to 40, or even $38 to $36 a share.

Fossil Group

My final earnings short-squeeze trading opportunity is consumer goods player Fossil Group  (FOSL) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Fossil Group to report revenue of $671.86 million on earnings of 9 cents per share.

The current short interest as a percentage of the float for Fossil Group is very high at 19.8%. That means that out of the 40.96 million shares in the tradable float, 8.12 million shares are sold short by the bears.

From a technical perspective, Fossil Group is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last two months, with shares moving higher off its low of $26.03 a share to its recent high of $31.99 a share. During that uptrend, shares of Fossil 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 major breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on Fossil 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 $31.60 to $32 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.49 million shares. If that breakout hits post-earnings, then this stock will set up to re-fill some of its previous gap-down-day zone from May that started near $41 a share.

I would avoid Fossil 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 $28.90 to $28.39 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 $26.79 to its new 52-week low of $26.03 a share. Any high-volume move below $26.03 will then push this stock into new 52-week-low territory, which is bearish technical price action.

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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