5 Stocks That Could Be Squeezed Much Higher

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.

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.

Yirendai

My first earnings short-squeeze trading opportunity is China-based online consumer finance marketplace operator Yirendai (YRD) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Yirendai to report revenue of $125.85 million on earnings of 19 cents per share.

The current short interest as a percentage of the float for Yirendai is very high at 17.4%. That means that out of the 9.37 million shares in the tradable float, 1.63 million shares are sold short by the bears.

From a technical perspective, Yirendai 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 and change, with shares moving higher off the low of $18.80 a share to the recent high of $32 a share. During that uptrend, shares of Yirendai 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 Yirendai, 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 $31.29 to $32 a share with high volume. Look for volume on that move that registers near or above the three-month average action of 1.06 million shares. If that breakout fires off post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $38 to $40, or even its 52-week high of $42.34 a share.

I would simply avoid Yirendai or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $28.95 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at $27.24 to its 50-day moving average of $25.92 a share, or even $25 to $23 a share.

Geospace Technologies

Another potential earnings short-squeeze play is oil and gas equipment and services player Geospace Technologies (GEOS) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Geospace Technologies to report revenue of $18.50 million on a loss of 46 cents per share.

The current short interest as a percentage of the float for Geospace Technologies is very high at 15.5%. That means that out of the 12.13 million shares in the tradable float, 1.88 million shares are sold short by the bears.

From a technical perspective, Geospace Technologies 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 and change, with shares moving higher off its low of $16.77 a share to its intraday high on Tuesday of $22.54 a share. During that uptrend, shares of Geospace Technologies 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 Geospace Technologies, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some past overhead resistance levels at $22.86 to $24 a share with high volume. Look for volume on that move that hits near or above the three-month average volume of 66,688 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 $26.75 to $29, or even $30 to $34 a share.

I would simply avoid Geospace Technologies 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 $21 to $20.60 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at its 20-day moving average of $19.23 a share to its 50-day moving average of $18.68 a share, or even $17.90 to $16.77 a share.

Abercrombie & Fitch

Another potential earnings short-squeeze candidate is casual apparel retailer Abercrombie & Fitch (ANF) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Abercrombie & Fitch to report revenue of $832.95 million on earnings of 22 cents per share.

The current short interest as a percentage of the float for Abercrombie & Fitch is extremely high at 25.2%. That means that out of the 67.17 million shares in the tradable float, 16.97 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.3%, or by about 539,000 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 move fast to cover some of their positions.

From a technical perspective, Abercrombie & Fitch 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 few weeks, with shares moving higher off the new 52-week low of $14 a share to the recent high of $17.35 a share. During that uptrend, shares of Abercrombie & Fitch 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 Abercrombie & Fitch, 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 $17.35 to $17.82 a share with high volume. Look for volume on that move that hits near or above the three-month average action of 3.18 million shares. If that breakout develops post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance level at around $19.50 a share. Any high-volume move above $19.50 will then give this stock a chance to refill some of the previous gap-down-day zone from August that started near $23 a share.

I would avoid Abercrombie & Fitch or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $15.23 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support level at its new 52-week low of $14 a share. Any high-volume move below $14 will then push this stock into new 52-week-low territory, which is bearish technical price action.

Baozun

Another earnings short-squeeze prospect is China-based e-commerce solutions provider Baozun (BZUN) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Baozun to report revenue of $110 million on earnings of 7 cents per share.

The current short interest as a percentage of the float for Baozun stands at 2.2%. That means that out of 21.05 million shares in the tradable float, 474,000 shares are sold short by the bears.

From a technical perspective, Baozun is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly over the last month, with shares moving higher off the low of $12.80 a share to the intraday high on Tuesday of $16.92 a share. During that uptrend, shares of Baozun have been making mostly higher lows and higher highs, which is bullish technical price action. That strong uptrend has now pushed this stock within range of triggering a major breakout trade post-earnings.

If you're bullish on Baozun, 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 $17.50 to its all-time high of $18.61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 609,075 shares. If that breakout materializes post-earnings, then this stock will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that move are $20 to $23 a share.

I would simply avoid Baozun 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 $15.06 a share to its 20-day moving average of $14.56 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at $14 to $13.22, or even $12.80 to $12.26 a share.

Target

My final earnings short-squeeze trade idea 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 of $16.30 billion on earnings of 83 cents per share.

The current short interest as a percentage of the float for Target is notable at 6.9%. That means that out of the 574.41 million shares in the tradable float, 39.63 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 0.9%, or by about 347,000 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 scramble to cover some of their trades.

From a technical perspective, Target 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 few weeks, with shares moving higher off the low of $65.45 a share to the recent high of $72.88 a share. During that uptrend, shares of Target 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 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 the 200-day moving average of $72.05 a share to $72.88 a share with high volume. Look for volume on that move that hits near or above the three-month average action of 5.33 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 $75.59 to $76.12, or even $82 to its 52-week high of $84.14 a share.

I would avoid Target 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 $70 to $69.50 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at its 50-day moving average of $68 a share to $66.50, or even $65.45 to $64.50 a share.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.