Stock Quotes in this Article: GHL, SCSS, SVU, URI, INVN

 DELAFIELD, Wis. (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.

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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.

InvenSense

My first earnings short-squeeze play to consider is micro-electro-mechanical systems technologies designer InvenSense (INVN), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect InvenSense to report revenue of $54.43 million on earnings of 12 cents per share.

Just recently, Maxim Group analyst Ashok Kumar said that Apple (AAPL) may incorporate one of InvenSense's products into the lower cost iPhone. Kumar noted that InvenSense's earnings power will be significantly increased starting later this summer if its sensor is incorporated into Apple's devices.

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The current short interest as a percentage of the float for InvenSense is extremely high at 20.3%. That means that out of the 39.81 million shares in the tradable float, 11.21 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of INVN could easily soar higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, INVN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last two months and change, with shares soaring higher from its low of $9.10 to its intraday high of $16.44 a share. During that move, shares of INVN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of INVN within range of triggering a major breakout trade.

If you're bullish on INVN, 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 at $16.44 a share and then above some past overhead resistance at $18.46 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 2.16 million shares. If that breakout hits, then INVN will set up to re-test or possibly take out its all-time high at $22.35 a share. Any high-volume move above that level will then give INVN a chance to tag $25 or even trade north of $25 a share.

I would simply avoid INVN or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $14.99 a share with high volume. If we get that move, then INVN will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $13.59 to its 200-day moving average at $12.07 a share.

United Rentals

Another potential earnings short-squeeze trade idea is construction, aerial and industrial equipment rental player United Rentals (URI), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect United Rentals to report revenue of $1.23 billion on earnings of $1.02 per share.

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During the last quarter, this company reported revenue of $1.10 billion, and GAAP reported sales were 68% higher than the prior-year quarter's $656 million. Also during the last quarter, this company reported non-GAAP EPS of 58 cents per share and GAAP EPS was 19 cents per share, which was 12% higher than the prior-year quarter's 17 cents per share.

The current short interest as a percentage of the float for United Rentals is pretty high at 13.1%. That means that out of the 93.60 million shares in the tradable float, 12.21 million shares are sold short by the bears. If URI can deliver a strong quarter, then this stock could easily spike sharply higher post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, URI is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last month, with shares moving higher from its low of $44.85 to its recent high of $53.94 a share. During that move, shares of URI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of URI within range of triggering a near-term breakout trade.

If you're in the bull camp on URI, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average at $53.42 a share and then once it takes out more resistance at $53.94 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.32 million shares. If that breakout triggers, then URI will set up to re-test or possibly take out its next major overhead resistance levels at $58.03 to its 52-week high at $59.74 a share. Any high-volume move above those levels will then give URI a chance to trend north of $60 a share.

I would simply avoid URI or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $51 a share with high volume. If we get that move, then URI will set up to re-test or possibly take out its 200-day moving average at $48.18 a share. Any high-volume move below that level will then put its next major support level at $44.85 into range for shares of URI.

Supervalu

Another potential earnings short-squeeze candidate is U.S. grocery store operator Supervalu (SVU), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Supervalu to report revenue of $5.17 billion on earnings of 3 cents per share.

The current short interest as a percentage of the float for Supervalu is extremely high at 25.7%. That means that out of the 195.56 million shares in the tradable float, 51.58 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Spervalu could easily explode higher post-earnings if a large short-squeeze develops.

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From a technical perspective, SVU is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares soaring higher from its low of $3.75 to its recent high of $7.11 a share. During that uptrend, shares of SVU have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SVU within range of triggering a major breakout trade post-earnings.

If you're bullish on SVU, 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 $7 a share and then once it takes out its 52-week high at $7.11 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 5.28 million shares. If we get that breakout, then SVU will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are its next major overhead resistance levels at $8.40 to $9 a share. Any high-volume move above those levels will then put $10 to $11 into range for shares of SVU.

I would avoid SVU or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average at $6.51 a share with high volume. If we get that move, then SVU will set up to re-test or possibly take out its next major support levels at $5.76 to $5 a share. Any high-volume move below those levels will then put its 200-day moving average at $4.28 into range for shares of SVU.

Select Comfort

Another earnings short-squeeze prospect is bed manufacturer and retailer Select Comfort (SCSS), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Select Comfort to report revenue of $210.77 million on earnings of 24 cents per share.

Just recently, Piper Jaffray said Select Comfort is set to outperform in the second half of 2013 with the second-quarter earnings report serving as a positive catalyst. That firm said its channel checks are favorable for the company's new DualTemp product and it keeps an overweight rating on the stock with a $31 a share price target.

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The current short interest as a percentage of the float for Select Comfort is pretty high at 12.1%. That means that out of the 54.04 million shares in the tradable float, 6.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.8%, or by about 179,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of SCSS could easily explode higher post-earnings if a short-squeeze develops.

From a technical perspective, SCSS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares soaring higher from its low of $16.74 to its recent high of $27.84 a share. During that uptrend, shares of SCSS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SCSS within range of triggering a key breakout trade post-earnings.

If you're bullish on SCSS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $27.84 to $28.94 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.24 million shares. If that breakout its, then SCSS will set up to re-test or possibly take out its next major overhead resistance levels at its 52-week high of $34.38 a share or its three-year high at $35.60 a share. Any high-volume move above those levels will then give SCSS a chance to tag $40 a share.

I would avoid SCSS or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $26 a share with high volume. If we get that move, then SCSS will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $24.03 a share or its 50-day moving average at $23.44 a share. Any high volume move below those levels will then give SCSS a chance to tag its next key support levels at $22 to $20 a share.

Greenhill

My final earnings short-squeeze trade idea is investment banking player Greenhill (GHL), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Greenhill to report revenue of $81.19 million on earnings of 52 cents per share.

The current short interest as a percentage of the float for Greenhill stands at 7%. That means that out of the 26.56 million shares in the tradable float, 1.83 million shares are sold short by the bears. This is a decent short interest on a stock with relatively low tradable float. Any bullish earnings news could easily set off a large short-squeeze for shares of GHL post-earnings.

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From a technical perspective, GHL is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending for the last month, with shares moving higher from its low of $43.21 to its recent high of $48.61 a share. During that uptrend, shares of GHL have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GHL within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on GHL, 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 $48.61 to $50.91 share with high volume. Look for volume on that move that hits near or above its three-month average volume of 319,617 shares. If that breakout triggers, then GHL will set up to re-test or possibly take out its next major overhead resistance levels at $54.09 to $58 a share.

I would avoid GHL or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $46 a share with high volume. If we get that move, then GHL will set up to re-test or possibly take out its next major support levels at $44.54 to $43.21 a share. Any high-volume move below $43.21 will then put its next major support levels at $41.99 to $40 into range for shares of GHL.

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

-- Written by Roberto Pedone in Delafield, Wis.

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

Roberto Pedone, based out of Delafield, Wis., 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.