5 Hated Stocks You Should Love Instead

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.

Pier 1 Imports

My first earnings short-squeeze play is specialty retailer Pier 1 Imports  (PIR) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pier 1 Imports to report revenue of $406.96 million on a loss of 5 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is extremely high at 25.8%. That means that out of the 77.60 million shares in the tradable float, 20.08 million shares are sold short by the bears.

From a technical perspective, Pier 1 Imports is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last month, with shares moving higher off its new 52-week low of $3.73 a share to its intraday high on Monday of $4.39 a share. During that uptrend, shares of Pier 1 Imports 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 bullish on Pier 1 Imports, then I would wait until after its report and look for long-biased trades if this stock manages to break out above Monday's intraday high of $4.39 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.86 million shares. If that breakout triggers post-earnings, then this stock will set up to re-fill its previous gap-down-day zone from earlier this month that started at $4.81 a share. Any high-volume move above $4.81 will then give this stock a chance to tag its next major overhead resistance levels at its 200-day moving average of $5.21 to $5.55a share.

I would simply avoid Pier 1 Imports 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 $4.05 to $4 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 at its new 52-week low of $3.73 a share.

Landec

Another potential earnings short-squeeze trade idea is farm products player Landec  (LNDC) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Landec to report revenue $131.84 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for Landec is notable at 8.1%. That means that out of the 23.83 million shares in the tradable float, 1.94 million shares are sold short by the bears.

From a technical perspective, Landec 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, with shares moving higher off its low of $9.85 a share to its recent high of $13.16 a share. During that uptrend, shares of Landec 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 in the bull camp on Landec, 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 at $13 a share to its 52-week high of $3.16 a share and then above more key resistance at $13.45 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 69,452 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 $15 to $15.16 a share or even $16 a share.

I would simply avoid Landec 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 $12.79 a share and its 50-day moving average of $12.27 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 $11.89 to its 200-day moving average of $11.40 a share, or even $11 to $10.50 a share.

Paychex

Another potential earnings short-squeeze candidate is staffing and outsourcing player Paychex  (PAYX) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Paychex to report revenue of $782.80 million on earnings of 57 cents per share.

The current short interest as a percentage of the float for Paychex stands at 5.6%. That means that out of the 321.87 million shares in the tradable float, 18.31 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.7%, or by about 824,000 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, Paychex 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 few weeks, with shares moving higher off its low of $57.81 a share to its recent high of $60.70 a share. During that uptrend, shares of Paychex have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now started to push this stock within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Paychex, 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 $59.94 a share and then above some key near-term overhead resistance levels at $60.70 to its 52-week high of $61.87 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.15 million 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 $65 to $70, or even $75 a share.

I would avoid Paychex 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 $59 to $57.81 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 $55 to its 200-day moving average of $53.93 a share.

BlackBerry

Another earnings short-squeeze prospect is smartphones maker and wireless technology player BlackBerry  (BBRY) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect BlackBerry to report revenue of $393.75 million on a loss of 5 cents per share.

The current short interest as a percentage of the float for BlackBerry is pretty high at 10.9%. That means that out of 521.24 million shares in the tradable float, 57.17 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 3 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 scramble to cover some of their positions.

From a technical perspective, BlackBerry 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 $7.15 a share to its recent high of $8.02 a share. During that uptrend, shares of BlackBerry have been making mostly higher lows and higher highs, which is bullish technical price action. That trend has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're bullish on BlackBerry, 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 $8.02 to $8.30 a share and then above more resistance at $8.36 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.83 million 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 its 52-week high of $9.46 to $10, or even $10.50 to $11 a share.

I would simply avoid BlackBerry 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 $7.64 a share and its 20-day moving average of $7.60 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 its 200-day moving average of $7.41 to $7.15, or even $6.80 to $6.30 a share.

Synnex

My final earnings short-squeeze trading opportunity is business services player Synnex  (SNX) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Synnex to report revenue of $3.49 billion on earnings of $1.56 per share.

The current short interest as a percentage of the float for Synnex sits at 4.5%. That means that out of the 28.96 million shares in the tradable float, 1.32 million shares are sold short by the bears.

From a technical perspective, Synnex 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 five months, with shares moving higher off its low of $77.38 a share to its new 52-week high of $108.31 a share. During that uptrend, shares of Synnex 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 Synnex 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 $108 to its 52-week high of $108.31 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 233,119 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 breakout are $115 to $120, or even $125 to $130 a share.

I would avoid Synnex 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 $104.90 a share to its 50-day moving average of $103.59 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 $100.73 to $99.75, or even $94 to its 200-day moving average of $92.66 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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