5 Stocks Everyone Hates -- but 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.

AZZ

My first earnings short-squeeze trade idea is diversified machinery player AZZ  (AZZ) , which is set to release numbers on Wednesday before the market open. There are currently no analysts' estimates available for AZZ.

The current short interest as a percentage of the float for AZZ sits at 1.5%. That means that out of the 25.59 million shares in the tradable float, 404,500 shares are sold short by the bears.

From a technical perspective, AZZ is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last six months, with shares moving higher off its low of $53.86 a share to its recent high of $67.98 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AZZ within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on AZZ, 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 $66.58 a share to its 52-week high of $67.98 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 130,673 shares. If that breakout triggers 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 simply avoid AZZ 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 $64.75 a share and its 20-day moving average of $64.69 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 $62.25 to $60, or even its 200-day moving average of $57.54 a share.

AngioDynamics

Another potential earnings short-squeeze play is health care 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 $80.05 million on earnings of 13 cents per share.

The current short interest as a percentage of the float for AngioDynamics stands at 3%. That means that out of the 23.23 million shares in the tradable float 697,500 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 $10.71 a share to its recent high of $17.64 a share. During that uptrend, this stock has been consistently making 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 its 52-week high of $17.64 a share to $18 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 251,220 shares. If that breakout hits post-earnings, then this stock will set up to enter new52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $20 to $23, or even $25 a share.

I would simply avoid AngioDynamics 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 $16.96 a share to its 50-day moving average of $16.48 a share and then below more near-term support levels at $16 to $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 $13.50 to its 200-day moving average of $13.27 a share.

Micron Technology

Another potential earnings short-squeeze candidate is semiconductor player Micron Technology  (MU) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue of $3.15 billion on a loss of 12 cents per share.

The current short interest as a percentage of the float for Micron Technology is pretty high at 7.4%. That means that out of the 1.03 billion shares in the tradable float, 77.13 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.1%, or by about 3 million shares. If the bears get caught pressing their bets into a bullish 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, Micron Technology 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 soaring higher off its low of $9.35 a share to its recent high of $18.16 a share. During that uptrend, shares of Micron Technology have been consistently making higher lows and higher highs, which is bullish technical price action. That strong move has now pushed this stock within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Micron Technology, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $18.16 to its 52-week high of $19.30 a share and then above more past resistance at $20.60 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 26.31 million shares. If that breakout materializes post-earnings, then this stock will set up to re-fill some of its previous gap-down-day zone from last August that started above $24 a share.

I would avoid Micron Technology 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 $17.33 a share and its 50-day moving average of $16.02 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 $15.38 to $14, or even $13 to its 200-day moving average of $12.73 a share.

Darden Restaurants

Another earnings short-squeeze prospect is full-service restaurants operator Darden Restaurants  (DRI) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Darden Restaurants to report revenue of $1.72 billion on earnings of 82 cents per share.

The current short interest as a percentage of the float for Darden Restaurants is pretty high at 8.5%. That means that out of 125.93 million shares in the tradable float, 10.78 million shares are sold short by the bear.

From a technical perspective, Darden Restaurants is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways over the last two months, with shares moving between $59.50 on the downside and around $64 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 Darden Resultants post-earnings.

If you're bullish on Darden Restaurants, then I would wait until after its report and look for long-biased trades if this stock manages to break out above both its 50-day moving average of $61.85 a share to its 200-day moving average of $62.94 a share and then above more key resistance levels at $63.50 to $64 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.82 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 $66 to its 52-week high of $68.97 a share.

I would simply avoid Darden Restaurants 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 $60 to $5.9.50 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 $55 to its 52-week low of $53.38 a share.

Constellation Brands

My final earnings short-squeeze trading opportunity is consumer goods player Constellation Brands  (STZ) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Constellation Brands to report revenue of $1.96 billion on earnings of $1.65 per share.

The current short interest as a percentage of the float for Constellation Brands stands at 2%. That means that out of the 167.47 million shares in the tradable float, 3.41 million shares are sold short by the bears.

From a technical perspective, Constellation Brands is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month, with shares moving higher off its low of $160.51 a share to its recent high of $168.68 a share. During that uptrend, shares of Constellation Brands 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 above some key overhead resistance levels.

If you're in the bull camp on Constellation Brands 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 $167 to its 52-week high of $168.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 966,492 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 $175 to $180, or even $185 to $190 a share.

I would avoid Constellation Brands 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 $163 to $162.24 a share and then below more support at $160.50 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 $158 to its 200-day moving average of $154.33 a share, or even $150.50 to $150 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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