5 Stocks That Could Get 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.

Qiwi

My first earnings short-squeeze trade idea is credit services player Qiwi (QIWI) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Qiwi to report revenue of $40.5 million on earnings of 27 cents per share.

The current short interest as a percentage of the float for Qiwi is notable at 3.5%. That means that out of the 32.45 million shares in the tradable float, 1.14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 26.1%, or by about 237,000 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 jump to cover some of their positions.

From a technical perspective, Qiwi 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 downtrending over the last two months and change, with shares falling sharply off the high of $16.17 a share to the recent low of $12.05 a share. During that downtrend, shares of Qiwi have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on Qiwi, 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 $13.75 to $13.96 a share and then above its 50-day moving average of $14.07 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 403,498 shares. If that breakout triggers post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $15.01 to $16, or even $17 to $18 a share.

I would simply avoid Qiwi 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 $12.90 a share to some more near-term support at $12.05 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 $11.43 to $11.10, or even its 52-week low of $10.42 a share.

Weibo

Another potential earnings short-squeeze play is China-based social media platform operator Weibo (WB) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Weibo to report revenue of $173.07 million on earnings of 20 cents per share.

The current short interest as a percentage of the float for Weibo is extremely high at 25.3%. That means that out of the 24.08 million shares in the tradable float, 6.1 million shares are sold short by the bears.

From a technical perspective, Weibo 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 downtrending over the last two months, with shares moving lower off the high of $55.93 a share to the recent low of $41.26 a share. During that downtrend, shares of Weibo have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on Weibo, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $49.24 a share and then above more near-term resistance at $49.50 a share with high volume. Look for volume on that move that hits near or above the three-month average volume of 1.82 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 $53.60 to its all-time high of $55.93 a share. Any high-volume move above $55.93 a share will then push this stock into new all-time-high territory, which is bullish technical price action.

I would simply avoid Weibo 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 $43.05 to $41.26 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 $36 to its 200-day moving average of $32.77 a share.

GameStop

Another potential earnings short-squeeze candidate is omnichannel video game retailer GameStop (GME) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect GameStop to report revenue of $1.99 billion on earnings of 47 cents per share.

The current short interest as a percentage of the float for GameStop is extremely high at 25.5%. That means that out of the 101.74 million shares in the tradable float, 25.98 million shares are sold short by the bears.

From a technical perspective, GameStop 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 $20.10 a share to its intraday high on Monday of $23.55 a share. During that uptrend, shares of GameStop 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 near-term breakout trade post-earnings.

If you're bullish on GameStop, 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 $24 to its 50-day moving average of $25.11 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.75 million 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 $27 to its 200-day moving average of $28 a share, or even $28.50 to $30 a share.

I would avoid GameStop 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 $22.72 a share to some more support at $21.50 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 level at its new 52-week low of $20.10 a share. Any high-volume move below $20.10 will then push this stock into new 52-week-low territory, which is bearish technical price action.

Hanwha Q Cells

Another earnings short-squeeze prospect is solar energy player Hanwha Q Cells (HQCL) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Hanwha Q Cells to report revenue of $653.4 million on earnings of 21 cents per share.

The current short interest as a percentage of the float for Hanwha Q Cells is pretty high at 12.3%. That means that out of 4.97 million shares in the tradable float, 612,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.3%, or by about 13,000 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 trades.

From a technical perspective, Hanwha Q Cells is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly over the last four months, with shares falling sharply off the high of $15.15 a share to the new 52-week low of $8.84 a share. During that downtrend, shares of Hanwha Q Cells have been consistently making lower highs and lower lows, which is bearish technical price action. That move has now pushed this stock into extremely oversold territory, since its current relative strength index reading is 28.

If you're bullish on Hanwha Q Cells, 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 $9.50 to $9.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 44,167 shares. If that breakout develops post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at its 20-day moving average of $10.25 a share to its 50-day moving average of $10.94 a share, or even $11.50 to $12 a share.

I would simply avoid Hanwha Q Cells or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $8.84 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $7.70 to $7, or even $6.50 a share.

Signet Jewelers

My final earnings short-squeeze trade idea is jewelry stores operator Signet Jewelers (SIG) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Signet Jewelers to report revenue of $1.18 billion on earnings of 20 cents per share.

The current short interest as a percentage of the float for Signet Jewelers is very high at 23.1%. That means that out of the 56.72 million shares in the tradable float, 13.13 million shares are sold short by the bears.

From a technical perspective, Signet Jewelers is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last two months, with shares moving higher off the low of $72.42 a share to the recent high of $94.44 a share. During that uptrend, shares of Signet Jewelers 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 Signet Jewelers, 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 $90 to its 200-day moving average of $93.72 a share and then above more key resistance levels at $93.72 to $95.89 a share with high volume. Look for volume on that move that hits near or above the three-month average action of 1.57 million shares. If that breakout kicks off post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $100 to $109, or even $115 a share.

I would avoid Signet Jewelers 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 at its 20-day moving average of $85.13 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 $81.04 a share to $78.40, or even $76 to its recent low of $72.42 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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