Stock Quotes in this Article: HMIN, IOC, CSOD, SZYM, KORS

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.

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With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

Home Inns & Hotels Management

My first earnings short-squeeze play is Home Inns & Hotels Management (HMIN), which is set to release numbers on Tuesday after the market close. This company develops, leases, operates, franchisees, and manages a chain of hotels in the People's Republic of China. Wall Street analysts, on average, expect Home Inns & Hotels Management to report revenue of $232.18 million on earnings of 37 cents per share.

This stock has been uptrending very strong over the last three months, with shares up sharply by 29%. This move has pushed shares of Home Inns & Hotels Management within seven points of its 52-week high of $35.89 a share ahead of its earnings report.

The current short interest as a percentage of the float for Home Inns & Hotels Management is pretty high at 10%. That means that out of the 31.62 million shares in the tradable float, 3.11 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low float. Any bullish earnings news and guidance could send this stock soaring higher post-earnings.

From a technical perspective, HMIN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last four months, with shares soaring from a low of $16.32 to its recent high of $29.67 a share. During that uptrend, shares of HMIN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed HMIN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on HMIN, 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 $29.67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 242,987 shares. If we get that breakout, then look for HMIN to re-test or possibly take out its next major overhead resistance levels at $32.95 to $33.27 a share. Any high-volume move above those levels will then put the 52-week high of $35.89 a share into focus for HMIN.

I would simply avoid HMIN or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves back below $26.90 and its 50-day moving average of $26.32 a share with high volume. If we get that action, then HMIN will set up to re-test or possibly take out its next major support area at its 200-day moving average of $24.73 a share.

Michael Kors

Another potential earnings short-squeeze trade idea is Michael Kors (KORS), which is set to release its numbers on Tuesday before the market open. This company designs, markets and distributes women's apparel and accessories and men's apparel. It operates in three business segments namely retail, wholesale and licensing. Wall Street analysts, on average, expect Michael Kors to report revenue of $519.31 million on earnings of 40 cents per share.

This company has reported double or triple-digit earnings gains since it came public last year. Just last week, Buckingham said the recent weakness in the stock was presenting a buying opportunity.

The current short interest as a percentage of the float for Michael Kors is notable at 3.1%. That means that out of the 123.10 million shares in the tradable float, 3.86 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a solid short-covering rally if Michael Kors can deliver the earnings news bulls are looking for.

From a technical perspective, KORS is currently trading above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been trending sideways for the last two months, with shares moving between $50.20 on the downside and $58.62 on the upside. A high-volume move outside of that range post-earnings will likely set up the next major trend for KORS

If you're in the bull camp on KORS, then I would wait until after its report and look for long-biased trades once this stock manages to recapture its 50-day moving average of $53.90 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 3,917,790 shares. If we get that move, then look for KORS to re-test or possibly take out its next major overhead resistance level at $58.62 a share. Any high-volume move above $58.62 should be considered very bullish technical action, since it will push KORS into all-time high territory.

I would simply avoid KORS or look for short-biased trades if after earnings this stock fails to trigger that move, and then drops back below some near-term support at $50.20 a share with high volume. If we get that move, then look for KORS to re-test or possibly take out its 200-day moving average of $45.45 a share.

InterOil

One potential earnings short-squeeze play in the oil and gas complex is InterOil (IOS), which is set to release numbers on Wednesday after the market close. This company is engaged in the exploration and production of oil and gas properties in Papua New Guinea and its surrounding region. Wall Street analysts, on average, expect InterOil to report revenue of $246.50 million on earnings of 12 cents per share.

This stock has been uptrending pretty strong so far in 2012, with shares up nicely by just over 25%. Despite that strong trend, shares of InterOil are still way off its 52-week high of $99.05 a share heading into its earnings report.

The current short interest as a percentage of the float for InterOil is extremely high at 27.7%. That means that out of the 41.14 million shares in the tradable float, 9.46 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3%, or by about 273,000 shares. Any bullish earnings and forward guidance news for InterOil could set off a major short-squeeze for the stock post-earnings.

From a technical perspective, IOC is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last two months, with shares falling from a high of $99.05 to its recent low of $63 a share. During that downtrend, shares of IOC have been mostly making lower highs and lower lows, which is bearish technical action. That said, shares of IOC have now started to find some buying interest at around $63 a share.

If you're bullish on IOC, then I would wait until after its report and look for long-biased trades if it can manage to break out above some near-term overhead resistance levels at $67.95 to $68.48 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 782,781 shares. If IOC triggers that breakout, then this stock will set up to re-test or possibly take out its 50-day moving average of $75.11 a share. Any high-volume move above $75.11 will then put $80 to $85 into focus for IOC.

I would avoid IOC 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 $63.15 to $63 a share with high volume. If we get that action, then look for IOC to re-test or possibly take out its next major support level at $57.58 a share. Any high-volume move below $57.58 will then put $52.89 into focus for IOC.

Cornerstone OnDemand

Another earnings short-squeeze candidate is Cornerstone OnDemand (CSOD), which is set to release numbers on Monday after the market close. This company is a global provider of a learning and talent management solution delivered as software-as-a-service (SaaS). Wall Street analysts, on average, expect Cornerstone OnDemand to report revenue of $30.22 million on a loss of 6 cents per share.

The current short interest as a percentage of the float for Cornerstone OnDemand is worth noting at 6.1%. That means that out of the 34.65 million shares in the tradable float, 2.05 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a decent short-squeeze if Cornerstone OnDemand can give the bulls what they're looking for.

From a technical perspective, CSOD is currently trading above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been uptrending strongly for the last six months, with shares soaring from a low of $18.02 to its recent high of $32.50 a share. During that uptrend, shares of CSOD have been consistently making higher lows and higher highs, which is bullish technical price action. Over the last month, shares of CsoD have sold off a bit from that high of $32.50 to $27.30 a share, but the stock is still trending within range of triggering a near-term breakout trade post-earnings.

If you're bullish on CSOD, 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 $29.55 to $29.58 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 342,041 shares. If we get that breakout, then look for CSOD to re-test or possibly take out its next major overhead resistance level at $32.50 a share. Any high-volume move above $32.50 a share should be considered bullish technical action, since shares of CSOD will then enter new 52-week high territory.

I would avoid CSOD 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 $27.48 to $26 a share with heavy volume. If we get that action, then CSOD will set up to re-test or possibly take out its next major support levels at $24.23 to its 50-day at $23.53 a share.

Solazyme

My final earnings short-squeeze trade idea is Solazyme (SZYM), which is set to release numbers on Wednesday after the market close. This company is in the business of transforming a range of low-cost plant-based sugars into high-value oils. Wall Street analysts, on average, expect Solazyme to report revenue of $8.83 million on a loss of 38 cents per share.

This stock has been crushed by the sellers so far in 2012, with shares down by around 35%. That extreme weakness now has shares of Solazyme trending just 20 cents off its 52-week low of $7.29 a share heading into its earnings report. That weakness has also pushed this stock into oversold territory, since its current relative strength index (RSI) reading is 21.82. Oversold can always get more oversold, but it's also an area that you can see monster bounces from heavily-shorted stocks.

The current short interest as a percentage of the float for Solazyme is very high at 15.7%. That means that out of the 37.55 million shares in the tradable float, 5.14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 24.2% or by about 1 million shares. If the bears are caught leaning too hard into this quarter, then we could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, SZYM is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares falling from a high of $14.23 to its recent low of $7.29 a share. During that downtrend, shares of SZYM have been consistently making lower highs and lower lows, which is bearish technical price action. That said, the stock is now very oversold and could be setting up for a powerful bounce post-earnings.

If you're in the bull camp on SZYM, 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 at $8.18 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 346,990 shares. If we get that move, then look for SZYM to possibly bounce back towards its 50-day moving average of $10.26 a share, or possibly even its 200-day moving average of $11.91 a share.

I would simply avoid SZYM or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves back below some major near-term support at $7.29 a share with high volume. If we get that move, then SZYM will enter all-time low territory, which is bearish technical price action.

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

-- Written by Roberto Pedone in Winderemere, Fla.

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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.