Stock Quotes in this Article: BBY, HAIN, SPLS, TSL, VNET

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.

Best Buy

My first earnings short-squeeze trade idea is multinational electronics retailer Best Buy (BBY), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Best Buy to report revenue of $9.13 billion on earnings of 12 cents per share.

Just recently, Wedbush Securities reiterated its underperform rating on Best Buy and 12-month price target of $9 per share, which reflects expectations for further margin erosion, low visibility, lack of 2014 guidance and doubts about the company's turnaround plan.

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The current short interest as a percentage of the float for Best Buy is pretty high at 8.7%. That means that out of the 269.93 million shares in the tradable float, 23.12 million shares are sold short by the bears.

From a technical perspective, BBY 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 powering higher from its low of $15.53 to its recent high of $32.17 a share. During that uptrend, shares of BBY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BBY within range of triggering a major breakout trade.

If you're bullish on BBY, 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 $32.17 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 5.46 million shares. If that breakout hits, then BBY will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $40 to $45.

I would simply avoid BBY 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 levels at $30.33 to its 50-day moving average of $29.15 a share with high volume. If we get that move, then BBY will set up to re-test or possibly take out its next major support levels at $28 to $26 a share. Any high-volume move below those levels will then put $25 to $22 within range for shares of BBY.

Trina Solar

Another potential earnings short-squeeze play is integrated solar-power products maker Trina Solar (TSL), which is set to release its numbers Tuesday before the market open. Wall Street analysts, on average, expect Trina Solar to report revenue of $374.89 million on a loss of 57 cents per share.

Just recently, this company issued guidance for the June quarter that included a big 25% jump in expected solar shipments to 630-660 megawatts. That jump is expected to produce 11% to 12% gross margins, which should support a much smaller loss that Trina will report this quarter.

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The current short interest as a percentage of the float for Trina Solar is very high at $13.6%. That means that out of the 65.85 million shares in the tradable float, 10.43 million shares are sold short by the bears. This is a big short interest on a stock with a relatively low tradable float. If the bulls get the earnings news they're looking for, then shares of TSL could easily explode higher post-earnings.

From a technical perspective, TSL 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 five months, with shares soaring higher from its low of $3.31 to its recent high of $8.47 a share. During that uptrend, shares of TSL have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TSL within range of triggering a near-term breakout trade.

If you're in the bull camp on TSL, 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 $8.08 to its 52-week high at $8.47 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 4.30 million shares. If that breakout hits, then TSL will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $12 to $13 a share.

I would simply avoid TSL 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 levels at $6.60 to $6.25 a share with high volume. If we get that move, then TSL will set up to re-test or possibly take out its next major support levels at $5 to $4.50 a share.

21Vianet Group

One potential earnings short-squeeze candidate is carrier-neutral Internet data center service provider in China 21Vianet (VNET), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect 21Vianet Group to report revenue of $76.37 million on earnings of 8 cents per share.

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The current short interest as a percentage of the float for 21Vianet Group is notable at 5.4%. That means that out of the 43.16 million shares in the tradable float, 2.47 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.2%, or by 229,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of VNET could rip sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, VNET 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 and changes, with shares moving higher from its low of $8.52 to its recent high of $14.68 a share. During that uptrend, shares of VNET have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VNET within range of triggering a major breakout trade post-earnings.

If you're bullish on VNET, 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 $14.15 to its 52-week high at $14.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 412,408 shares. If that breakout triggers, then VNET will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $17 to $20 a share.

I would avoid VNET 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 $13.37 a share with high volume. If we get that move, then VNET will set up to re-test or possibly take out its next major support levels at $12.44 to $11.30 a share. Any high-volume move below those levels will then put its 200-day moving average at $10.25 into range for shares of VNET.

Staples

Another earnings short-squeeze prospect is office products player Staples (SPLS), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Staples to report revenue of $5.37 billion on earnings of 18 cents per share.

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The current short interest as a percentage of the float for Staples is pretty high at 9.4%. That means that out of the 657.97 million shares in the tradable float, 61.70 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.4%, or by about 2.01 million shares. If the bears are caught pressing their bets into a strong quarter, then shares of SPLS could rip higher post-earnings as the bears jump to cover some of short positions.

From a technical perspective, SPLS 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 four months, with shares soaring higher from its low of $12.32 to its recent high of $17.30 a share. During that uptrend, shares of SPLS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SPLS within range of triggering a near-term breakout trade.

If you're bullish on SPLS, 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 $17 to its 52-week high at $17.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 7.07 million shares. If that breakout triggers, then SPLS will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $22 a share.

I would avoid SPLS 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 $16.36 a share to more key support levels at $15.99 to $15.58 a share with high volume. If we get that move, then SPLS will set up to re-test or possibly take out its next major support levels at $14.50 to its 200-day moving average at $13.63 a share.

Hain Celestial Group

My final earnings short-squeeze play is Hain Celestial Group (HAIN), a natural and organic food manufacturer, marketer and distributor, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Hain Celestial Group to report revenue of $454.82 million on earnings of 62 cents per share.

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The current short interest as a percentage of the float for Hain Celestial Group is very high at 15.9%. That means that out of the 38.66 million shares in the tradable float, 7.28 million shares are sold short by the bears. This is a big short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of HAIN post-earnings.

From a technical perspective, HAIN 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 moving higher from its low of $52.49 to its recent high of $78.29 a share. During that uptrend, shares of HAIN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of HAIN within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on HAIN, 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 $75.50 to $77 a share and then once it clears its 52-week high at $78.29 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 446,612 shares. If that breakout triggers, then HAIN will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $90 to $100 a share.

I would avoid HAIN 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 levels at $72.18 a share to its 50-day at $70.41 a share with high volume. If we get that move, then HAIN will set up to re-test or possibly take out its next major support levels at $66 to its 200-day moving average at $62.38 a share.

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.