Stock Quotes in this Article: ADTN, FAST, RT, VOXX, WWW

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.

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.

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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.

Adtran

My first earnings short-squeeze play is communications network service provider Adtran (ADTN), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Adtran to report revenue of $175.10 million on earnings of 22 cents per share.

The current short interest as a percentage of the float Adtran stands at 7.6%. That means that out of the 54.85 million shares in the tradable float, 4.22 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then this stock could easily rip sharply higher post-earnings.

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From a technical perspective, ADTN 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 $19.94 to its recent high of $27.92 a share. During that uptrend, shares of ADTN have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ADTN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ADTN, 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 $27.92 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 624,605 shares. If that breakout triggers, then ADTN will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $35 to $38 a share.

I would simply avoid ADTN or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $26.16 a share and then below more near-term support at $25.68 a share with high volume. If we get that move, then ADTN will set up to re-test or possibly take out its next major support levels at $23.55 to its 200-day at $22.92 a share.

Wolverine World Wide

Another potential earnings short-squeeze trade is men's footwear and apparel player Wolverine World Wide (WWW), which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Wolverine World Wide to report revenue $712.48 million on earnings of $1.02 per share.

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The current short interest as a percentage of the float for Wolverine World Wide is notable at 6.7%. That means that out of the 44.56 million shares in the tradable float, 3.26 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a sharp short covering rally if the bulls get the earnings news they're looking for.

From a technical perspective, WWW is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways inside of a consolidation pattern for the last three months, with shares moving between $55.01 on the downside and $60.29 on the upside. Shares of WWW have recently started to trend back above its 50-day moving average, and it's starting to move within range of triggering a big breakout trade.

If you're in the bull camp on WWW, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some resistance at $59.85 a share and then once it takes out its 52-week high at $60.35 a share high volume. Look for volume on that move that hits near or above its three-month average action of 418,075 shares. If that breakout hits, then WWW will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $75 a share.

I would simply avoid WWW or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $57.02 a share and then below more key near-term support at $55.01 a share with high volume. If we get that move, then WWW will set up to re-test or possibly take out its next major support levels at $50 to its 200-day at $49.69 a share.

Fastenal

One potential earnings short-squeeze candidate is industrial and construction supplies retailer Fastenal (FAST), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Fastenal to report revenue of $866.03 million on earnings of 41 cents per share.

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The current short interest as a percentage of the float for Fastenal sits at 7.1%. That means that out of the 272.04 million shares in the tradable float, 19.36 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2%, or by about 385,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of FAST could easily trend sharply higher post-earnings as the bears rush to cover some of those bets.

From a technical perspective, FAST 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 month, with shares moving higher from its low of $43.75 a share to its recent high of $51.60 a share. During that uptrend, shares of FAST have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FAST within range of triggering a big breakout trade post-earnings.

If you're bullish on FAST, 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 $51.60 to $52.84 a share and then once it takes out its 52-week high at $53.38 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.61 million shares. If that breakout hits, then FAST will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $60 o $65 a share.

I would avoid FAST or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 200-day at $48.46 a share and its 50-day at $48.13 a share with high volume. If we get that move, then FAST will set up to re-test or possibly take out its next major support levels at $45 to $43.75 a share.

Ruby Tuesday

Another earnings short-squeeze prospect is casual dining restaurant player Ruby Tuesday (RT), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Ruby Tuesday to report revenue of $298.27 million on a loss of 5 cents per share.

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The current short interest as a percentage of the float for Ruby Tuesday sits at 4.3%. That means that out of the 56.38 million shares in the tradable float, 2.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.6%, or by about 224,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of RT could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, RT is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways inside of a consolidation chart pattern for the last two months, with shares moving between $7.03 on the downside and $8.25 on the upside. If this stock can manage to take out the upper-end of its recent sideways trading chart pattern, then it could trigger a solid breakout trade post-earnings.

If you're bullish on RT, 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 level $7.96 to $8.25 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 540,811 shares. If that breakout hits, then RT will set up to re-fill some of its previous gap down zone from July that started near $9.50 a share. Any high-volume move above $9.50 to $10 will then give RT a chance to tag $11 a share.

I would simply avoid RT 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 $7.30 to $7.03 a share with high volume. If we get that move, then RT will set up to re-test or possibly take out its 52-week low at $6.75 a share, which is bearish technical price action.

Voxx International

My final earnings short-squeeze play is automotive parts and accessories retailer Voxx International (VOXX), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect VOXX International to report revenue of $186.73 million on earnings of 9 cents per share.

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The current short interest as a percentage of the float for VOXX International sits at 5.2%. That means that out of the 19.59 million shares in the tradable float, 1.03 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news could easily set off a solid short-squeeze for shares of VOXX post-earnings.

From a technical perspective, VOXX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last two months, with shares moving higher from its low of $11.76 a share to its recent high of $14.02 a share. During that uptrend, shares of VOXX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VOXX within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on VOXX, 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 $14.02 to $14.29 a share and then once it takes out its 52-week high at $15 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 124,531 shares. If that breakout hits, then VOXX will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $18 to $20 a share.

I would avoid VOXX or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $13.20 a share and then below more near-term support at $13 a share with high volume. If we get that move, then VOXX will set up to re-test or possibly take out its next major support levels at $11.76 to its 200-day at $11.11 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.