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.

21Vianet Group

My first earnings short-squeeze trade idea is technology player 21Vianet Group  (VNET) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect 21Vianet Group to report revenue of $128.17 million on a loss of 9 cents per share.

The current short interest as a percentage of the float for 21Vianet Group is rather high at 11.1%. That means that out of the 27.43 million shares in the tradable float, 3.05 million shares are sold short by the bears.

From a technical perspective, 21Vianet 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 month and change, with shares moving higher off its low of $9.02 a share to its recent high of $10.72 a share. During that uptrend, shares of 21Vianet Group have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're bullish on 21Vianet 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 $10.72 to $11 a share and then above more resistance at $11.74 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.70 million 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 $13 to $13.50, or even $14 to $14.50 a share.

I would simply avoid 21Vianet 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 $10.10 to its 20-day moving average of $9.81 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 $9.41 to $9.02, or even its 52-week low of $8.76 a share.

Target

Another potential earnings short-squeeze play is general merchandise retailer Target  (TGT) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Target to report revenue $16.17 billion on earnings of $1.12 per share.

The current short interest as a percentage of the float for Target is notable at 6.2%. That means that out of the 588.87 million shares in the tradable float, 37.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.3%, or by about 3.15 million shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Target 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 and change, with shares moving higher off its low of $64.98 a share to its recent high of $76.77 a share. During that uptrend, shares of Target 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 in the bull camp on Target, 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 $76.23 to $76.77 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 6.31 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 $80 to $83, or even its 52-week high of $84.62 a share.

I would simply avoid Target 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 $74.15 a share to its 200-day moving average of $73.31 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 $71.16 to $68 a share.

Popeyes Louisiana Kitchen

Another potential earnings short-squeeze candidate is quick-service restaurants player Popeyes Louisiana Kitchen  (PLKI) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Popeyes Louisiana Kitchen to report revenue of $63.39 million on earnings of 47 cents per share.

The current short interest as a percentage of the float for Popeyes Louisiana Kitchen stands at 6.7%. That means that out of the 21.55 million shares in the tradable float, 1.44 million shares are sold short by the bears.

From a technical perspective, Popeyes Louisiana Kitchen is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last two months, with shares moving between $53.14 a share on the downside and $59.22 to $59.75 a share 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 Popeyes Louisiana Kitchen.

If you're bullish on Popeyes Louisiana Kitchen, 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 $59.22 to $59.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 198,922 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 $62.50 to its 52-week high of $63 a share, or even $66.50 a share.

I would avoid Popeyes Louisiana Kitchen 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 $56.40 a share to its 200-day moving average of $55.97 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 $53.14 to around $50 a share.

58.com

Another earnings short-squeeze prospect is China-based online marketplace operator 58.com  (WUBA) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect 58.com to report revenue of $303.55 million on a loss of 11 cents per share.

The current short interest as a percentage of the float for 58.com is notable at 9.7%. That means that out of 86.51 million shares in the tradable float, 8.41 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 5.6%, or by about 445,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily trend sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, 58.com 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 two months, with shares moving higher off its low of $43.94 a share to its recent high of $55.28 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. That strong move has now pushed shares of 58.com within range of triggering a big breakout trade post-earnings.

If you're bullish on 58.com, 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 $55.28 to $57 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.44 million 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 $59 to $61.50, or even $65 a share.

I would simply avoid 58.com 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 $52.40 a share to its 20-day moving average of $51.68 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 $48.69 a share to $45 a share.

The Buckle

My final earnings short-squeeze trading opportunity is casual apparel stores operator The Buckle  (BKE) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect The Buckle to report revenue of $217 million on earnings of 36 cents per share.

The current short interest as a percentage of the The Buckle is extremely high at 29%. That means that out of the 27.78 million shares in the tradable float, 8.06 million shares are sold short by the bears.

From a technical perspective, The Buckle 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 over the last three months, with shares moving higher off its low of $21.80 a share to its recent high of $27.68 a share. During that uptrend, shares of The Buckle 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 in the bull camp on The Buckle 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 $26.77 to $27.68 a share and then above its 200-day moving average of $28.27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 399,947 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 $31.20 to $34.50 a share.

I would avoid The Buckle or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average of $25.81 a share to some more near-term support levels at $24.90 to $23.66 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 $22 a share. Any high-volume move below $22 a share 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.

More from Stocks

Jim Cramer on What's Next for U.S.-China Trade Relations

Jim Cramer on What's Next for U.S.-China Trade Relations

Jim Cramer: China Trade Tensions Make it Tougher to Pick Stocks

Jim Cramer: China Trade Tensions Make it Tougher to Pick Stocks

Lee Munson Discusses the Market and Areas of Opportunity for Investors

Lee Munson Discusses the Market and Areas of Opportunity for Investors

Jim Cramer on Larry Kudlow, Tariffs, Nucor, IBM and Domino's Pizza

Jim Cramer on Larry Kudlow, Tariffs, Nucor, IBM and Domino's Pizza

Dow Falls on Trade Worries but IBM Rises as Earnings Beat Forecasts

Dow Falls on Trade Worries but IBM Rises as Earnings Beat Forecasts