Stock Quotes in this Article: CBOU, PANL, SGEN, SODA, KIOR

WINDERMERE, Fla. (Stockpickr) -- 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.

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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 technically very bullish 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 The 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, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

SodaStream

My first earnings short-squeeze play is SodaStream (SODA), which is set to release numbers on Wednesday before the market open. This company is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products. Wall Street analysts, on average, expect SodaStream to report revenue of $103.52 million on earnings of 72 cents per share.

The current short interest as a percentage of the float for SodaStream is gigantic at 47.7%. That means that out of the 16.82 million shares in the tradable float, 8.51 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.7%, or by about 306,000 shares. If the bears are caught leaning too hard into this quarter, then we could easily see SODA explode higher post-earnings.

From a technical perspective, SODA is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last three months, with shares dropping from a high of $44.50 to its recent low of $34.17 a share. During that slide lower, shares of SODA have been consistently making lower highs and lower lows, which is bearish technical action. That said, SODA has started to hit oversold levels with its current relative strength index (RSI) reading at 35.

If you're bullish on SODA, then I would wait until after its report and look for long-biased trades once it manages to break out above some near-term overhead resistance levels at $37.04 to $37.75 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 728,356 shares. If we get that breakout, then look for SODA to re-test or possibly take out its next major overhead resistance levels at $40.69 to $41.63 a share.

I would simply avoid SODA or look for short-biased trades if after earnings it fails to trigger that breakout, and then takes out some key near-term support at $34 to $33 a share with high volume. If we get that action, then SODA will set up to re-test or possibly take out its next major support levels at $29.44 to $28.28 a share.

Universal Display

Another potential earnings short-squeeze play is Universal Display (PANL), which is set to release its numbers on Wednesday after the market close. This company is engaged in the research, development and commercialization of organic light emitting diode, or OLED, technologies and materials. Wall Street analysts, on average, expect Universal Display to report revenue of $18.87 million on earnings of 5 cents per share.

During the last quarter, this company reported revenue of $30 million. Its GAAP reported sales were much higher than the previous year quarter's $11.3 million. This stock is trending lower heading into the quarter, with shares off by 20% in the last six months.

The current short interest as a percentage of the float for Universal Display is very high at 25.6%. That means that out of the 35.51 million shares in the tradable float, 10.09 million shares are sold short by the bears. This stock sports a relatively low float and high short interest. Any bullish earnings news could spark a sharp short-covering rally post-earnings.

From a technical perspective, PANL is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending sharply for the last two months, with shares falling from $44.42 to a recent low of $30.82 a share. During that drop, shares of PANL have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of PANL have recently found some buying interest at around $30.80 a share.

If you're in the bull camp on PANL, then I would wait until after its report and look for long-biased trades once it manages to break out above some near-term overhead resistance at $34.54 to $36.73 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 856,743 shares. If that breakout triggers, then PANL will set up to re-test or possibly take out its next major overhead resistance levels at $40 to $42 a share or possibly even $44.42 a share.

I would simply avoid PANL or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then drops back below some near-term support at $30.82 to $30.36 a share with high volume. If we get that action, then PANL will set up to re-test or possibly take out its next major support levels at $28.04 to $26.09 a share.

Caribou Coffee

One potential earnings short-squeeze candidate is Caribou Coffee (CBOU) , which is set to release numbers on Tuesday after the market close. This company is a branded premium coffee company across three reportable operating segments: Retail Coffeehouses, Commercial and Franchise. Wall Street analysts, on average, expect Caribou Coffee to report revenue of $74.99 million on earnings of 6 cents per share.

The current short interest as a percentage of the float for Caribou Coffee is rather high at 14.5%. That means that out of the 17.49 million shares in the tradable float, 2.81 million shares are sold short by the bears. If this company can manage to deliver the earnings news the bulls are looking for, then we could easily see a large short-squeeze develop post-earnings.

From a technical perspective, CBOU is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last month, with shares dropping from $14.95 to its recent low of $11.35 a share. During that sharp move lower, shares of CBOU have been consistently making lower highs and lower lows, which is bearish technical price action. That said, buying interest has recently hit the stock at around $11.35 a share.

If you're bullish on CBOU, then I would wait until after its report and look for long-biased trades if it can manage to break out above some key overhead resistance levels at $13.04 to $14.08 a share with high volume. Look for volume on that move that tracks in near or above its three-month average action of 291,010 shares. If we get that move, then CBOU will set up to re-test or possibly take out its next major overhead resistance levels at $14.95 to $17 a share.

I would avoid CBOU or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some key near-term support levels at $11.35 a share with high volume. If we get that action, then CBOU will set up to re-test or possibly take out its next major support levels at $10.05 to $9.93 a share.

KiOR

Another earnings short-squeeze trade candidate is KiOR (KIOR) , which is set to release numbers on Thursday before the market open. This company has developed a proprietary technology platform to convert low-cost, abundant and sustainable non-food biomass into hydrocarbon-based oil. There are currently no Wall Street estimates available for KiOR.

This stock has been dowtrending badly so far in 2012, with shares off by 30%. Shares of KiOR are trading about two points above its 52-week low of $4.82 a share as we approach its earnings report.

The current short interest as a percentage of the float for KiOR is rather high at 13%. That means that out of the 20.05 million shares in the tradable float, 4.14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 15.1%, or by about 544,000 shares. If the bears are caught leaning too hard into this quarter, then we could easily see the stock rip higher as shorts rush to cover some of their bearish bets post-earnings.

From a technical perspective, KIOR is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock recently dropped sharply from its October high of $9.52 to its recent low of $4.82 a share. Following that drop, shares of KIOR have rebounded sharply towards its current price of $7.06 a share. That rebound has now pushed KIOR within range of triggering a near-term breakout trade post-earnings.

If you're bullish on KIOR, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance levels at $7.18 to $7.24 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 179,725 shares. If we get that breakout, then KIOR will set up to re-test or possibly take out its next major overhead resistance levels at $8.94 to $9.52 a share.

I would avoid KIOR or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some near-term support at $6.50 to $6 a share with heavy volume. If we get that action, then KIOR will set up to re-test or possibly take out its 52-week low of $4.82 a share.

Seattle Genetics

My final earnings short-squeeze trade idea is Seattle Genetics (SGEN), which is set to release numbers on Wednesday after the market close. This is a biotechnology company, which is focused on the development and commercialization of monoclonal antibody-based therapies for the treatment of cancer and autoimmune disease. Wall Street analysts, on average, expect Seattle Genetics to report revenue of $52.66 million on a loss of 15 cents per share.

During the last quarter, this company reported a net loss of 15 cents per share versus Wall Street estimates of a loss of 15 cents per share. This follows after two straight quarters of exceeding expectations. Seattle Genetics is hoping to extend its streak of double-digit revenue this quarter to five in a row. The company has averaged year-over-year revenue growth of more than threefold over the last four quarters.

The current short interest as a percentage of the float for Seattle Genetics is extremely high at 20.8%. That means that out of the 97.28 million shares in the tradable float, 24.12 million shares are sold short by the bears. This stock could explode to the upside post-earnings if the bulls get the news they're looking for.

From a technical perspective, SGEN is currently trading below its 50-day moving average and above it 200-day moving average, which is neutral trendwise. This stock has been downtrending for the last two months, with shares falling from $29.83 to its recent low of $24 a share. During that drop, shares of SGEN have been mostly making lower highs and lower lows, which is bearish technical price action. That said, the stock has held its 200-day and started to find some buying interest near $24 a share.

If you're in the bull camp on SGEN, 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 $25.90 to $26.60 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 788,751 shares. If we get that breakout, then look for SGEN to set up to re-test or possibly take out its next major resistance level at $27.83 a share. Any high-volume move above $27.83 will then put $29.83 into focus for SGEN.

I would simply avoid SGEN 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 $24 to $22.76 a share with high volume. If we get that move, then SGEN will set up to re-test or possibly take out its next major support level at $21 to $19.03 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

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-- Written by Roberto Pedone in Winderemere, Fla.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.