Stock market bears hate being caught short a stock that announces a positive earnings report. When this happens, we often see a tradable short squeeze develop as the bears scramble to cover their positions. Even the best short-sellers know, it's never a great idea to get caught short once a bullish earnings report kicks off a short-covering rally.
This is why I scan the market every week for heavily shorted stocks that are set to release earnings. You only need to find a few of these plays every week to help rack up supercharged returns.
With that in mind, here are five:
My first earnings short-squeeze trading opportunity is restaurants operator Shake Shack (SHAK) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Shake Shack to report revenue of $74.72 million on earnings of 8 cents per share.
The current short interest as a percentage of the float for Shake Shack is extremely high at 50.8%. That means that out of the 15.54 million shares in the tradable float, 7.89 million shares are sold short by the bears.
I would wait until after Shake Shack reports, and then look for long-biased trades if this stock manages to clear a key downtrend line that starts over $34.54 to its 200-day at $35.24 with volume that hits near or above 656,247 shares. If that breakout develops post-earnings, then this stock will set up to make a run at its next key resistance levels at $37.65 to $39.70 a share.