Stock Quotes in this Article: BRLI, CYBX, FRED, OSIS, OVTI, RUE, TIVO

WINDERMERE, Fla. (Stockpickr) -- With earnings season in full swing on Wall Street, it’s the perfect opportunity for market-players to create a powerful watch list of stocks that are due to report numbers that are also heavily shorted by the bears. As positive earnings come out and the bears rush to cover their positions, these stocks can pop.

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.

Sometimes the stock is going to be in such high demand that you will miss a lot of the move. That’s why it can be worth betting prior to the report -- buy only if you have a very strong conviction that the stock is going to rip higher.

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    My article yesterday listed five prime candidates.

    Here’s a look at a number of other stocks that could experience big short squeezes when they report earnings this week.

    Tivo

    My first earnings short squeeze candidate is Tivo (TIVO), which is set to report its results on Wednesday after the market close. This company, together with its subsidiaries, provides technology and services for television solutions, including digital video recorders and connected televisions in the U.S. and internationally. Wall Street analysts, on average, expect Tivo to report revenues of $47.60 million on a loss of 20 cents per share.

    This company beat Wall Street estimates last quarter mostly due to a litigation proceeds, but failed to beat projections in the prior two quarters. Revenues have been falling during the past four quarters, and only during the latest quarter did Tivo post a profit out of the last four. Equities research analysts at Caris & Company upgraded the stock yesterday from an average rating to an above average rating. The analysts currently have an $11 price target on Tivo.

    The current short interest as a percentage of the float for Tivo is a rather large 16.6%. That means that out of the 107.97 million shares in the tradable float, 19.83 million are sold short by the bears.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock has also dropped from its July high of $11 a share to a recent low of $7.06 a share.

    If you’re bullish on Tivo, I would buy this stock after they report once it trades above $8.50 to $8.90 a share on big volume. Look for volume that’s close to or greater than its three-month average action of 2.9 million shares. I would then add to any long position if you see this stock move above its 50-day moving average of $9.47 a share. Target $10.50 to $11 a share if this stock sees a solid short covering rally after they report.

    I would only short this name after they report if the stock drops below $7 to $6.92 a share on big volume. I would expect Tivo to trade down towards $5 a share if those levels are taken out with volume after earnings.

    Rue21

    Another potential earnings short squeeze play is Rue21 (RUE), which is set to report results on Wednesday after the market close. This company operates as a specialty apparel retailer in the U.S., and it offers an assortment of fashion apparel and accessories for girls and guys. Wall Street analysts, on average, expect Rue21 to report revenues of $171.75 million on earnings of 32 cents per share.

    I like this name for an earnings short squeeze play since this stock is so heavily shorted and the stock has been annihilated ahead of the quarter. Shares of Rue21 have fallen dramatically from its July high of $37.33 a share to its current price of just over $26 a share. This big beat down on the stock could be setting it up for a sharp rally if the company can deliver what the bulls are looking for.

    The current short interest as a percentage of the float for Rue21 is an extremely large 32%. That means that out of the 13.24 million shares in the tradable float, 5.01 million are sold short by the bears. This is a gigantic short position on a stock with a very low tradable float. This type of situation can spark massive short covering rallies once the supply and demand favors the bulls and the bears are forced to start covering their bets.

    From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. This stock has also been making lower highs and lower lows for the past few months, which is also bearish. That said, the stock has started to find some buying support at around $25 a share.

    If you’re bullish on this name, I would wait until after they report and buy the stock once you see it trade above $27 a share on strong volume. Look for volume that’s close to or greater than its three-month average action of 345,000 shares. If it trades above $27 I would target a run back towards $29.72 or up to its 50-day moving average of $31.40 a share.

    I would only short this stock after they report if you see shares drop below $24 a share on huge volume. I move below that level with volume would signal to me that the bears have control of this stock. I would target the next significant previous support price of $20 a share if not even lower if the short-sellers gain the upper hand after earnings.

    Bio-Reference Laboratories

    If you’re looking for an earnings short squeeze trade in the healthcare sector, then take a look at Bio-Reference Laboratories (BRLI), which is set to release numbers on Thursday before the market open. This company is engaged in providing laboratory testing services, to customers in the greater New York metropolitan area, as well as to customers in other states. Wall Street analysts, on average, expect Bio-Reference to report revenues of $146.30 million on earnings of 34 cents per share.

    This is another heavily shorted stock that has dropped huge in front of the quarter. Shares of Bio-Reference have dropped from its recent high of $25.99 a share in late May to its current price of just above $18 a share. During the last quarter, this company beat Wall Street estimates of 24 cents per share after they reported 26 cents per share.

    The current short interest as a percentage of the float for Bio-Reference is a very large 29%. That means that out of the 24.73 million shares in the tradable float, 7.17 million are sold short by the bears. This is a huge short interest on a stock with a very low float. If Bio-Reference reports a strong quarter and guides higher, then we could easily see a big short covering rally in the stock.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been in a clear downtrend for the past three months with shares making lower highs and lower lows. This demonstrates that large traders have been selling the stock into strength and weakness as they distributed shares.

    The way I would play this stock is to wait until after they report and then buy the stock if it trades above its 50-day moving average of $19.94 a share on big volume. Look for volume that’s close to or greater than its three-month average action of 278,000 shares. I would then add to any long position once the stock takes out its 200-day moving average of $22.06 a share. I would target a move up towards $23 to $24 a share if the bulls gain control of this stock.

    I would only short this name after they report if the stock drops below some big support areas at around $17.90 to $17.50 a share on big volume. I would target a fall back towards its next closest support level at around $15.40 a share.

    OmniVision Technologies

    One earnings short squeeze play in the semiconductor complex is OmniVision Technologies (OVTI), which is set to release numbers on Thursday after the market close. This company designs, develops, and markets semiconductor image-sensor devices. Wall Street analysts, on average, expect OmniVision to report revenues of $276.59 million on earnings of 72 cents per share.

    This stock is probably my favorite earnings short squeeze trade for this article. The stock is trading up over 8% today after a Needham analyst said that the stock price reflects the impact of a dual-source relationship with Apple (AAPL), which is a 30% to $35% customer. The same analyst reiterated a strong buy on OVTI with a price target of $45 a share.

    The current short interest as a percentage of the float for OmniVision is a notable 12.4%. That means that out of the 58.25 million shares in the tradable float, 7.25 million are sold short by the bears. It’s worth pointing out that the bears have been increasing their bets from the last reporting period by 10.8%, or by about 705,000 shares. If the bears are caught pressing their bets into the quarter, and OmniVision delivers what the bulls are looking for, then the stock could explode higher.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock recently dropped from a high of $36.78 hit in late May to its current price of just over $25 a share. Following that big drop, the stock has now started to print some higher lows so the trend could be changing back into the favor of the bulls.

    The way I would play this stock is to wait until after they report and buy some shares of it trades above some big near-term overhead resistance at around $27.25 a share on solid volume. Look for volume that’s close to or greater than its three-month average action of 2.3 million shares. I would then add aggressively to any long position if the stock takes out its 200-day moving average of $30.36 a share. I would target a move back toward $33 to $34 a share if the bulls gain control of this stock post-earnings.

    I would only short this stock after they report if the shares drop below some big near-term support zones at $22.89 to $22.21 a share on big volume. I would add to any short positions if it then falls below the next significant support zones of $20 to $18.50 a share. Target a move back towards $16 to $15 a share if the bears want to whack this stock after earnings.

    OSI Systems

    One final earnings short squeeze play is OSI Systems (OSIS), which is set to release numbers on Thursday before the market open. This is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications. It sells its products in diversified markets, including homeland security, healthcare, defense and aerospace. Wall Street analysts, on average, expect OSI Systems to report revenues of $188.07 million on earnings of 65 cents per share.

    This stock has been beaten down ahead of the quarter, with shares falling from a high in late July of $45.28 a share to its recent low of $31.92 a share. This big drop in such a short timeframe could set the stock up for a sharp rebound if the company can report a solid quarter and issue bullish guidance.

    The current short interest as a percentage of the float for OSI Systems is worth mentioning at 4.7%. That means that out of the 17.23 million shares in the tradable float, 804,306 are sold short by the bears. It’s worth pointing out that the bears have also been increasing their bets from the last reporting period by 12.8%, or by about 91,000 shares.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock has recently started making higher lows which could be signaling a bullish trend change. What’s important now is that shares of OSIS hold above $33 a share, which is the support level of the base the stock is presently in.

    The way I would play this stock is to buy some shares after they report if you see it trade above $35.88 on heavy volume. Look for volume that’s greater than or close to its three-month average action of 135,000 shares. I would then add to any long position if the stock takes out its 50-day moving average ($37.97) on strong volume. Target a run towards $40 to $42 a share if the bulls can spark a short squeeze.

    I would only short this stock if it trades below $31.92 a share on big volume after they report earnings. I would target a drop towards the next significant previous support zones at around $29 to $27 a share if the bears can push this lower after earnings.

    To see more potential earnings short squeeze candidates like Cyberonics (CYBX), Krispy Kreme (KKD) and Fred’s (FRED), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

    RELATED LINKS:

    >>5 Rocket Stocks to Buy for Another Volatile Week

    >>5 Small-Caps at Risk From Earnings Reports

    >>5 Technical Setups for Breakout Gains

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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 stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.