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.

NVIDIA

My first earnings short-squeeze trade idea is visual computing player NVIDIA (NVDA) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect NVIDIA to report revenue of $2.11 billion on earnings of 83 cents per share.

The current short interest as a percentage of the float for NVIDIA stands at 7.1%. That means that out of the 514.46 million shares in the tradable float, 36.73 million shares are sold short by the bears.

From a technical perspective, NVIDIA 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 $57.23 a share to its recent high of $119.93 a share. During that uptrend, shares of NVIDIA have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on NVIDIA, 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 $119.93 a share (or above Thursday's high if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 18.05 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 breakout are $125 to $130, or even $135 to $140 a share.

I would simply avoid NVIDIA 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 $117.50 to around $115 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 20-day moving average of $108.69 a share to its 50-day moving average of $103.17 a share, or even $100 to $95 a share.

Green Plains

Another potential earnings short-squeeze trading opportunity is ethanol producer and distributor Green Plains (GPRE) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Green Plains to report revenue of $1 billion on earnings of 38 cents per share.

The current short interest as a percentage of the float for Green Plains is extremely high at 18.9%. That means that out of the 32.56 million shares in the tradable float, 6.17 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 162,000 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 positions.

From a technical perspective, Green Plains 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 two months, with shares falling sharply lower off its high of $29.85 a share to its recent low of $21.52 a share. During that downtrend, this stock has been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of Green Plains have now started to rebound a bit off that $21.52 low, and it's starting to move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Green Plains, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $23.17 a share and then above more near-term resistance levels at $23.50 to $24.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 914,437 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 its 50-day moving average of $25.85 a share to $27, or even $28 to $29 a share.

I would simply avoid Green Plains or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key support levels at $21.52 to $20.35 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 $18 to $17, or even $16 a share.

Pandora Media

Another potential earnings short-squeeze candidate is Internet music streaming services player Pandora Media (P) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Pandora Media to report revenue of $373.54 million on a loss of 21 cents per share.

The current short interest as a percentage of the float for Pandora Media is extremely high at 30%. That means that out of the 206.27 million shares in the tradable float, 62.03 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 1.21 million 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, Pandora Media 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 $12.50 a share on the downside and $13.63 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 of Pandora Media.

If you're bullish on Pandora Media, 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 $13.63 to $14.10 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 6.77 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 its 52-week high of $14.98 a share to $16.23 a share. Any high-volume move above $16.23 will then give this stock a chance to re-fill some of its previous gap-down-day zone from last October that started near $20 a share.

I would avoid Pandora Media 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 $12.92 a share and its 200-day moving average of $12.46 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 $11.50 to $11.17, or even $11 to $10.75 a share.

Dunkin' Brands Group

Another earnings short-squeeze prospect is quick service restaurants player Dunkin' Brands Group (DNKN) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Dunkin' Brands Group to report revenue of $215.53 million on earnings 61 cents per share.

The current short interest as a percentage of the float for Dunkin' Brands Group is pretty high at 9.1%. That means that out of 86.56 million shares in the tradable float, 7.89 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.8%, or by about 501,000 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, Dunkin' Brands Group is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has recently formed a double bottom chart pattern, after shares found some buying interest at $50.26 to $50.54 a share over the last month and change. Following that potential bottom, shares of Dunkin' Brands Group have now started to spike a bit higher right into its 20-day moving average of $51.42 a share. That spike is now starting to push this stock within range of triggering a near-term breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Dunkin' Brands Group, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $51.42 a share and its 50-day moving average of $52.71 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.15 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 level at its 52-week high of $56.13 a share. Any high-volume move above $56.13 will then give this stock a chance to make a run at $60 to $65 a share.

I would simply avoid Dunkin' Brands Group 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 $50.54 to $50.26 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 $48.28 a share to $46.27, or even $43.50 to $42 a share.

Flotek Industries

My final earnings short-squeeze trade play is oil and gas equipment and services player Flotek Industries (FTK) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Flotek Industries to report revenue of $77 million on a loss of 4 cents per share.

The current short interest as a percentage of the float for Flotek Industries is very high at 30.7%. That means that out of the 44.70 million shares in the tradable float, 13.74 million shares are sold short by the bears.

From a technical perspective, Flotek Industries is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last two months, with shares moving higher off its low of $8.86 a share to its recent high of $10.80 a share. During that uptrend, shares of Flotek Industries have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed shares of Flotek Industries 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 Flotek Industries 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 $10.80 to $11 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.19 million 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 levels at its 200-day moving average of $12.51 a share to $13, or even $14 a share.

I would avoid Flotek Industries 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 $10.16 a share to more near-term support at $9.93 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 $9.50 to $9.30, or even $8.86 to $8 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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