Make it rain with these names

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.

Core Laboratories

My first earnings short-squeeze trade idea is oil and gas equipment and services player Core Laboratories (CLB - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Core Laboratories to report revenue of $145.78 million on earnings of 41 cents per share.

The current short interest as a percentage of the float for Core Laboratories is pretty high at 12.4%. That means that out of the 43.31 million shares in the tradable float, 5.40 million shares are sold short by the bears.

From a technical perspective, Core Laboratories is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last month, with shares moving between $118.55 a share on the downside and $125.26 a share 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 for Core Laboratories.

If you're bullish on Core Laboratories, 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 $124.34 to $125.26 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 438,042 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 $131.53 to $133, or even its 52-week high of $135.50 a share.

I would simply avoid Core Laboratories 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 $120 to $118.55 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 50-day moving average of $116.29 a share to its 200-day moving average of $115.25 a share, or even $112.50 to $110 a share.

Cimpress

Another potential earnings short-squeeze trading opportunity is business services player Cimpress (CMPR - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Cimpress to report revenue of $581.24 million on earnings of $1.15 per share.

The current short interest as a percentage of the float for Cimpress is extremely high at 24%. That means that out of the 17.45 million shares in the tradable float, 4.20 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.5%, or by about 103,000 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 run to cover some of their positions.

From a technical perspective, Cimpress 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 three months, with shares moving higher off its low of $80.47 a share to its recent high of $97.83 a share. During that uptrend, shares of Cimpress 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 in the bull camp on Cimpress, 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 $97.83 to $100 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 281,363 shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $103 to its 52-week high of $104.18 a share, or even $110 a share.

I would simply avoid Cimpress 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 $94.55 a share and its 200-day moving average of $94.22 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 50-day moving average of $90.95 a share to $90, or even $87 to $85 a share.

Proofpoint

Another potential earnings short-squeeze candidate is application software player Proofpoint (PFPT - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Proofpoint to report revenue of $104.81 million on earnings of 13 cents per share.

The current short interest as a percentage of the float for Proofpoint is pretty high at 13.9%. That means that out of the 41.33 million shares in the tradable float, 5.77 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.7%, or by about 153,000 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 trades.

From a technical perspective, Proofpoint 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 is low of $69.23 a share to its recent high of $82.71 a share. During that uptrend, shares of Proofpoint have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed shares of Proofpoint within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Proofpoint, 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 $82 to $83 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 598,298 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 level at its 52-week high of $88 a share. Any high-volume move above $88 will then give this stock a chance to trend north of $90 a share.

I would avoid Proofpoint 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 $77.11 a share to its 20-day moving average of $77 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 $73 to $72, or even its 200-day moving average of $69.97 a share.

Oshkosh

Another earnings short-squeeze prospect is specialty vehicles and vehicle bodies designer Oshkosh (OSK - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Oshkosh to report revenue of $1.19 billion on earnings of 12 cents per share.

The current short interest as a percentage of the float for Oshkosh stands at 5.8%. That means that out of 73.78 million shares in the tradable float, 4.30 million shares are sold short by the bear.

From a technical perspective, Oshkosh 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 three months and change, with shares moving higher off its low of $51.83 a share to its recent high of $71.99 a share. During that uptrend, shares of Oshkosh have been making mostly higher lows and higher highs, which is bullish technical price action. That strong uptrend has now pushed shares of Oshkosh within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Oshkosh, 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 $71 to its 52-week high of $71.99 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 951,171 shares. If that breakout hits 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 $75 to $80, or even $85 a share.

I would simply avoid Oshkosh 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 $67.93 a share to its 20-day moving average of $67.49 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 $64.32 to $61, or even $60 to $58 a share.

Murphy Oil

My final earnings short-squeeze trading opportunity is oil and gas exploration and production player Murphy Oil (MUR - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Murphy Oil to report revenue of $484.62 million on a loss of 15 cents per share.

The current short interest as a percentage of the float for Murphy Oil is pretty high at 13.3%. That means that out of the 162.74 million shares in the tradable float, 31.70 million shares are sold short by the bears.

From a technical perspective, Murphy Oil is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last three months, with shares moving higher off its low of $24.66 a share to its recent high of $35.19 a share. During that uptrend, shares of Murphy Oil 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 in the bull camp on Murphy Oil 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 $32.34 to $32.62 a share and then above $33 to $33.61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.95 million shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $35 to its 52-week high of $37.48 a share, or even $40 to $45 a share.

I would avoid Murphy Oil 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 $31.49 a share to $30.37 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 $29.60 a share to $28.45, or even $27 to $26 a share.

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