5 Stocks 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.

United Natural Foods

My first earnings short-squeeze play is natural, organic and specialty foods and non-food products retailer United Natural Foods  (UNFI) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect United Natural Foods to report revenue of $2.22 billion on earnings of 63 cents per share.

The current short interest as a percentage of the float for United Natural Foods is notable at 5.9%. That means that out of the 49.05 million shares in the tradable float, 2.92 million shares are sold short by the bears.

From a technical perspective, United Natural Foods is currently trending below its 50-day moving average and just above its 200-day moving average, which is neutral trendwise. This stock has been downtrending over the last two months, with shares moving lower off its high of $52.18 a share to its recent low of $40.74 a share. During that downtrend, shares of United Natural Foods have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on United Natural Foods, 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 $42 to $43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 625,364 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 $44 to its 20-day moving average of $46.15, or even its 50-day moving average of $47.12 to $50 a share.

I would simply avoid United Natural Foods 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 $40.62 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 $37 to $36, or even $35 to $34 a share.

USA Technologies

Another potential earnings short-squeeze trade idea is technology player USA Technologies  (USAT) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect USA Technologies to report revenue of $21.20 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for USA Technologies is very high at 11.3%. That means that out of the 35.21 million shares in the tradable float, 3.99 million shares are sold short by the bears.

From a technical perspective, USA Technologies is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending over the last three months and change, with shares moving higher off its low of $3.78 a share to its recent high of $5.30 a share . During that uptrend, shares of USA Technologies have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on USA Technologies, 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 $5.08 a share and then above more key resistance levels at $5.22 to its 52-week high of $5.30 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 272,522 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 move are $6 to $6.50, or even $7 a share.

I would simply avoid USA Technologies 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 $5.70 to $4.65 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 $4.30 to $4.05, or even its 200-day moving average of $4.06 a share.

Farmer Brothers

Another potential earnings short-squeeze candidate is processed and packaged goods player Farmer Brothers  (FARM) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Farmer Brothers to report revenue of $135.56 million on earnings of 32 cents per share.

The current short interest as a percentage of the float for Farmer Brothers is notable at 4.3%. That means that out of the 7.82 million shares in the tradable float, 337,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.9%, or by about 318,000 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 rush to cover some of their positions.

From a technical perspective, Farmer Brothers 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 and change, with shares moving between $29 on the downside and $33.38 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 Farmer Brothers.

If you're bullish on Framer Brothers, 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 to its 52-week high of $33.38 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 41,256 shares. If that breakout kicks 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 $40 to $45, or even $50 a share.

I would avoid Farmer Brothers 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 $31.52 a share and its 50-day moving average of $31.41 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 $29.49 to $29, or even $28 to $27 a share.

Cracker Barrel Old Country Store

Another earnings short-squeeze prospect is restaurants player Cracker Barrel Old Country Store  (CBRL) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Cracker Barrel Old Country Store to report revenue of $742.34 million on earnings of $2.13 per share.

The current short interest as a percentage of the float for Cracker Barrel Old Country Store is extremely high at 23.7%. That means that out of 18.92 million shares in the tradable float, 4.49 million shares are sold short by the bear.

From a technical perspective, Cracker Barrel Old Country Store is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending over the last month, with shares moving lower off its high of $162.33 a share to its intraday low on Monday of $146.51 a share. During that downtrend, shares of Cracker Barrel Old Country Store have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on Cracker Barrel Old Country Store, 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 $150 to $151.30 a share and then above $153 to $154 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 283,056 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 its 20-day moving average of $155.71 a share to its 50-day moving average of $157.12 a share, or even $158 to $160 a share.

I would simply avoid Cracker Barrel Old Country Store 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 $146 to its 200-day moving average of $143.60 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 $140 to $130 a share.

Clarcor

My final earnings short-squeeze trading opportunity is pollution and treatment controls provider Clarcor  (CLC) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Clarcor to report revenue of $337.91 million on earnings of 69 cents per share.

The current short interest as a percentage of the float for Clarcor stands at 2.9%. That means that out of the 48.42 million shares in the tradable float, 1.40 million shares are sold short by the bears.

From a technical perspective, Clarcor 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 four months and change, with shares moving higher off its low of $54.58 a share to its recent high of $66.59 a share. During that uptrend, shares of Clarcor 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 in the bull camp on Clarcor, 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 its 20-day moving average of $64.61 a share to $65 a share and then above its 52-week high of $66.59 a share to some past resistance at $66.97 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 232,656 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 $70 to $75, or even $80 a share.

I would avoid Clarcor 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 $61 to $60 a share and then below more support at $59 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 $56.50 to its 200-day moving average of $55.45 a share, or even $54.50 to $52 a share.

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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