5 Earnings Short-Squeeze Trade Ideas -- Box, Tiffany, More

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.

Nutanix

My first earnings short-squeeze play is enterprise cloud platform solutions provider Nutanix (NTNX) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Nutanix to report revenue of $152.25 million on a loss of 44 cents per share.

The current short interest as a percentage of the float for Nutanix is extremely high at 92.8%. That means that out of the 4.99 million shares in the tradable float, 4.63 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 33.4%, or by about 1.15 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 move fast to cover some of their positions.

From a technical perspective, Nutanix is currently trending above its 20-day moving average, which is bullish. This stock has been uptrending over the last month, with shares moving higher off its low of $23.11 a share to its recent high of $34.96 a share. During that uptrend, shares of Nutanix 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 above some key overhead resistance levels.

If you're bullish on Nutanix, 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 $34.96 to $35.90 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.93 million 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 $39.90 to around $44, or even its all-time high of $46.78 a share.

I would simply avoid Nutanix 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 $32 to its 20-day moving average of $29.18 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 $26 to $23 a share.

Zumiez

Another potential earnings short-squeeze trade idea is specialty retailer Zumiez (ZUMZ) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Zumiez to report revenue of $217.90 million.

The current short interest as a percentage of the float for Zumiez is extremely high at 25.9%. That means that out of the 17.12 million shares in the tradable float, 4.44 million shares are sold short by the bears.

From a technical perspective, Zumiez 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 $13.63 a share to its recent high of $25.60 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That strong move has now pushed shares of Zumiez within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on Zumiez, 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 $25.25 to its 52-week high of $25.60 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 468,658 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 move are $30 to $35 a share.

I would simply avoid Zumiez 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 its 20-day moving average of $24.03 a share to $23.85 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 $22.02 to its 50-day moving average of $21.72 a share, or even $21.20 to $20 a share.

Pure Storage

Another potential earnings short-squeeze candidate is enterprise data storage platform provider Pure Storage (PSTG) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pure Storage to report revenue of $192.36 million.

The current short interest as a percentage of the float for Pure Storage is extremely high at 54.6%. That means that out of the 30.73 million shares in the tradable float, 16.79 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2%, or by about 333,000 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 move fast to cover some of their trades.

From a technical perspective, Pure Storage 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 $11.44 a share to its recent high of $15.14 a share. During that uptrend, shares of Pure Storage have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on Pure Storage, 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 $14.75 to $15.14 a share and then above more resistance at $15.20 to $15.35 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.22 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 levels at $16.40 to its 52-week high of $18.39 a share.

I would avoid Pure Storage 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 $14.06 to its 50-day moving average of $13.42 a share and then below its 200-day moving average of $12.96 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 $12 to $11.44, or even $11.21 to $10.75 a share.

Box

Another earnings short-squeeze prospect is application software player Box (BOX) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Box to report revenue of $100.64 million on a loss of 19 cents per share.

The current short interest as a percentage of the float for Box is very high at 13.8%. That means that out of 49.53 million shares in the tradable float, 6.87 million shares are sold short by the bears.

From a technical perspective, Box 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 $13.62 a share to its recent high of $16.12 a share. During that uptrend, shares of BOX 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 above some key overhead resistance levels.

If you're bullish on Box, 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 $16.12 to its 52-week high of $16.59 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.10 million 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 $19 to $20.65, or even $21 a share.

I would simply avoid Box 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 $15.05 to its 20-day moving average of $14.80 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 $13.62 to its 200-day moving average of $12.79 a share.

Tiffany

My final earnings short-squeeze trading opportunity is retail jewelry store operator Tiffany (TIF) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Tiffany to report revenue of $926.64 million.

The current short interest as a percentage of the float for Tiffany is very high at 12.6%. That means that out of the 124.06 million shares in the tradable float, 15.71 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.8%, or by about 431,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily jump sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Tiffany 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 $56.63 a share to its recent high of $81.89 a share. During that uptrend, shares of Tiffany have been making mostly 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.

If you're in the bull camp on Tiffany, 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 $79 to $79.61 a share and then above its 52-week high of $81.89 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.54 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 breakout are $90 to $93, or even $100 a share.

I would avoid Tiffany and 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 $75.33 to its 50-day moving average of $74.08 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 $72 to $71.50, or even $70 to its 200-day moving average of $68.01 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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