Stock Quotes in this Article: CALD, GMCR, PPO, SAM, SKUL

 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.

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 timeframe that your profits add up quickly.

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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. 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, and its acting technically very bullish.

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

Skullcandy

My first earnings short-squeeze trade play today is audio headphones maker Skullcandy (SKUL), which is set to release its numbers on Wednesday after the market close. This company is an audio brand that reflects the collision of the music, fashion and action sports lifestyles. Wall Street analysts, on average, expect Skullcandy to report revenue of $44.29 million on earnings of 4 cents share.

On Monday, Morgan Stanley published a research report on Skullcandy that said the firm remains bullish on the stock following store checks. Morgan wrote: “Observations suggest consumers increasingly buying headphones when purchasing smartphones. Retailers seeing less price resistance for high-end product. We think SKUL is taking share at BBY and at least maintaining share elsewhere. New packaging transition seemingly going smoothly.” Morgan maintained its overweight rating on the stock with a $21 price target.

The current short interest as a percentage of the float for Skullcandy is ridiculous at 126.5%. That means that out of the 8.33 million shares in the tradable float, 9.2 million shares are sold short by the bears. This is a gigantic short interest on a stock with an extremely low float. If Skullcandy crushes earnings and raises forward guidance, then this stock could easily explode through the roof post-earnings.

In fact, this situation is unique with over 100% of the float sold short, so any bullish news could produce one of the largest earnings-related short-squeeze seen in a long time. Keep in mind this will all be predicated on a bullish quarter, so the bears had better be dead-on to be short so much its float.

From a technical perspective, SKUL is currently trading above its 50-day moving average, which is bullish. This stock IPO'd back in July of 2011, so there’s currently not enough technical data to compile its 200-day moving average. During the last three months, this stock has been uptrending strong from its recent low of $11.87 toward its high of $17.76 a share. That move has now pushed SKUL within range of a triggering a major breakout trade post-earnings.

If you’re in the bull camp on SKUL, I would wait until after its report and look for long-biased trades if this stock can manage to trigger a breakout move above some near-term overhead resistance at $17.76 a share with high-volume. Look for volume that registers close to or well above its three-month average action of 549,264 shares. If we get that action, then this stock could explode through its next major overhead resistance level at $19.75 a share, and possibly re-test its all-time high of $23.40 a share post-earnings.

I would simply avoid SKUL or look for short-biased trades if after earnings this stock fails to trigger that breakout and then drops back below some near-term support at $15.10 a share with heavy volume. Target a drop back towards some near-term support at $13.25 or possibly below $12 a share if the bears win this battle and destroy this stock post-earnings.

Skullcandy shows up on recent lists of 3 Short-Squeeze Stocks for Earnings Season and 4 Stocks With High Short Interest That Could Rise.

Polypore

One potential earnings short-squeeze trade in the chemical manufacturing complex is Polypore (PPO), which is set to report results on Wednesday after the market close. This is a technology filtration company, develops, manufactures, and markets specialized microporous membranes used in separation and filtration processes. Wall Street analysts, on average, expect Polypore to report revenue of $173.40 million on earnings of 45 cents share.

This company beat estimates last quarter after missing projections in the previous quarter. In the fourth quarter of last year, it reported net income of 54 cents per shares vs. a mean estimate of a profit of 52 cents per share. Polypore will be going for its fifth consecutive quarter of double-digit revenue growth this quarter. The company has averaged year-over-year revenue growth of 24.1% over the last four quarters.

The current short interest as a percentage of the float for Polypore is extremely high at 28.6%. That means that out of the 46.49 million shares in the tradable float, 13.38 million shares are sold short by the bears. This is a very high short interest on a stock with a relatively low float. If Polypore can produce bullish earnings results, then this stock could easily experience a monster short squeeze.

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From a technical perspective, PPO is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock plunged back in February from around $54 to $36.60 a share on monster volume. Since that huge drop, PPO has now entered a sideways trading pattern between $33.80 and $38.94 a share. A move outside of that range post-earnings should setup the next major trend for PPO.

If you’re a bull on PPO, 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 at $37.97 to $38.94 a share with high-volume. Look for volume on that move that’s near or well above its three-month average volume of 2.5 million shares. If we get that action, then look for PPO to spike big back towards its next significant overhead resistance levels at $41.75 to $43.97 a share, or possibly even $46 a share if the bulls gain full control of this stock post-earnings.

I would simply avoid PPO or look for short-biased trades if after earnings that breakout never triggers, and then the stock drops back below some major near-term support levels at $35.76 to $33.80 a share on heavy volume. If we get that drop, target an even bigger fall towards $30 to $25 a share if the bears spark a big selloff post-earnings.

Boston Beer

Another potential earnings short-squeeze candidate in the alcoholic beverages complex is Boston Beer (SAM), which is set to release numbers on Wednesday after the market close. This company is a craft brewer in the United States. Wall Street analysts, on average, expect Boston Beer to report revenue of $112.13 million on earnings of 40 cents per share.

Recently, Auriga said it's maintaining its buy rating on the stock and its $100 price target. The firm said it expects Boston Beer to benefit from continued growth of its seasonal beers as well as that from Twisted Tea, which is being rolled out to new markets this year. Auriga also cautioned that this quarter will likely see higher component costs and higher shipping costs.

The current short interest as a percentage of the float for Boston Beer is extremely high at 34.5%. That means that out of the 8.22 million shares in the tradable float, 2.87 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.6%, or by about 73,000 shares. The bears could be in for a world of hurt if Boston Beer can crush estimates and raise forward guidance, since the stock has such a low float and high short interest.

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From a technical perspective, SAM is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock ripped back above its 50-day moving average of $101.20 a share on Monday on above average volume. That move has now pushed the stock within range of triggering a major breakout post-earnings, if the company can deliver what the bulls are looking for.

If you like the look of SAM here, then I would wait until after they report and look for long-biased trades if this stock can trigger a break out above some near-term overhead resistance at $107.18 to $108.16 a share with high-volume. Look for volume on that move that clocks in close to or above its three-month average action of 115,757 shares. If we get that move, then SAM can easily skyrocket above its December high of $115.49 since it will be trading in all-time high territory.

I would avoid SAM or look for short-biased trades if the stock fails to trigger that breakout, and then drops back below its 50-day moving average of $101.20 and then below some near-term support at $97.47 a share with high-volume. Target a fall back towards its 200-day moving average of $94.27 a share or possibly much lower if the bears spark a big selloff post-earnings.

Green Mountain Coffee Roasters

One earnings short-squeeze candidate in the food processing space is Green Mountain Coffee Roasters (GMCR), which is set to release numbers on Wednesday after the market close. This company is engaged in the specialty coffee and coffee maker businesses. Wall Street analysts, on average, expect Green Mountain Coffee Roasters to report revenue of $971.72 million on earnings of 64 cents per share.

This company beat Wall Street estimates last quarter, after missing projections in the prior quarter. During the first quarter, Green Mountain Coffee Roasters reported net income of 60 cents per share against a mean estimate of a profit of 36 cents per share. Revenue is trending strong heading into this quarter, since Green Mountain Coffee Roasters has averaged year-over-year revenue growth of more than twofold over the last four consecutive quarters.

The current short interest as a percentage of the float for Green Mountain Coffee Roasters is very high at 23%. That means that out of the 129.52 million shares in the tradable float, 28.02 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.9%, or by about 2.51 million shares.

From a technical perspective, GMCR is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock formed a triple top back in February at around $69 to $71 a share, and subsequently plunged to a recent low of $41.02 a share. After tagging that low, GMCR has found some renewed buying interest and recently triggered a near-term breakout above $45.85 a share.

If you’re in the bull camp for GMCR, I would look for long-biased trades after it reports earnings if this stock manages to break out above some overhead resistance at $50 to its 50-day moving average of $53.02 a share with high-volume. Look for volume on that move that registers near or well above its three-month average action of 5,678,490 shares. If we get that action, then it’s possible for GMCR to get into its gap-down zone from back in March that started at over $62.50 a share.

I would simply avoid GMCR or look for short-biased trades if the stock fails to trigger that breakout, and then drops back below some near-term support at $42.80 to $41.02 a share with heavy volume. If we get that action, target a big move lower in GMCR that could push this stock down towards its 2011 low of $34.06 a share.

GMCR shows up on a list of 4 Battleground Stocks Fought Over by the Biggest Investors in the most recently reported quarter.

Callidus Software

My final earnings short-squeeze trade idea is software and programming player Callidus Software (CALD), which is set to release numbers on Wednesday after the market close. This company is a provider of sales performance management software and services. Wall Street analysts, on average, expect Callidus Software to report revenue of $22.61 million on a loss of 1 cent per share.

If you’re looking for a heavily-shorted small-cap technology stock that’s trading within range of a big breakout move following its earnings report, then make sure to check out shares of Callidus Software. Shares of Callidus Software are up 23% so far in 2012 and this stock is just 30 cents off its 52-week high of $8.24 a share.

The current short interest as a percentage of the float for Callidus Software is rather high at 14.5%. That means that out of the 28.63 million shares in the tradable float, 4.11 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.4%, or by about 282,000 shares. The bulls could easily see a big short-squeeze here since CALD is heavily-shorted and uptrending near new highs ahead of its report.

From a technical perspective, CALD is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong heading into its earnings report, with shares ripping higher form a recent low of $4.48 to a high of $8.24 a share. During that move, shares of CALD have managed to find buying interest almost every time it’s pulled back near its 50-day moving average. Now this stock is trading very close to triggering a major breakout trade post-earnings.

If you’re bullish on CALD, I would wait until after its report and look for long-biased trades if this stock breaks out above $8.00 to $8.24 a share with high-volume. Look for volume on that move that’s near or well above its three-month average volume of 314,252 shares. If we get that action, look for CALD to continue its uptrend towards $10 a share in the near-term.

I would simply avoid CALD or look for short-biased trades if it fails to trigger that breakout, and then drops below some near-term support at its 50-day moving average of $7.60 and more support at $7.06 a share with heavy volume. If we get that action, look for CALD to trend lower towards its next significant support levels at $6.35 to $5.50 a share if the bears hammer this down post-earnings.

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 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.