Stock Quotes in this Article: ASYS, FTK, OPTR, QUAD, CJES

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.

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.

>>5 Stocks to Buy Instead of Facebook

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 -- but only if you have a very strong conviction that the stock is going to rip higher, and its acting technically very bullish. Remember, even when you have that conviction and you 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, and then jump in and trade the prevailing trend on a heavily-shorted stock that’s reporting its numbers.

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

C&J Energy Services

My first earnings short-squeeze trade idea is oil well services and equipment player C&J Services (CJES), which is set to release its numbers on Wednesday after the market close. This is an independent provider of hydraulic fracturing, coiled tubing and pressure pumping services. Wall Street analysts, on average, expect C&J Energy Services to report revenue of $244 million on earnings of 97 cents per share.

If you’re looking for a beaten-down heavily shorted energy name ahead of its earnings report, then make sure to check out shares of C&J Energy Services. Over the prior one-year period, this stock has plunged by 39%, and shares are currently trading just six points above is 52-week low of $12.65 a share.

The current short interest as a percentage of the float for C&J Energy Services is extremely high at 36.1%. That means that out of the 35.88 million shares in the tradable float, 12.36 million shares are sold short by the bears. This is a huge short interest on a stock with a relatively low float. If C&J Energy Services can report a strong quarter and raise forward guidance, then this stock could explode to the upside post-earnings.

>>7 Energy Stocks That Investors Have All Wrong

From a technical perspective, CJES is currently trading above its 50-day moving average, which is bullish. This stock recently sold off hard from its February high of $23.11 to a recent low of $16.15 a share. After hitting that low, shares of CJES have rebounded and started to move back above its 50-day moving average of $18.24 a share.

If you’re in the bull camp on CJES, I would wait until after its report and look for long-biased trades if it can trigger a break out above some near-term overhead resistance at $19.45 to $20.40 a share with high-volume. Look for volume on that move that registers near or above its three-month average action of 1,449,760 shares. If we get that action, then CJES should easily be able to hit its February high of $23.11 a share or possibly much higher towards $26 a share.

I would simply avoid CJES 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 $17.42 a share with heavy volume. Target a move lower towards $16 to $14 a share if the bears whack this stock down post-earnings.

Flotek Industries

Another potential earnings short-squeeze opportunity in the oil well services and equipment complex is Flotek Industries (FTK), which is set to report results on Thursday before the market open. This company develops and supplies drilling and production related products and services to the energy and mining industries in the U.S. and internationally. Wall Street analysts, on average, expect Flotek Industries to report revenue of $74.29 million on earnings of 18 cents per share.

This company has topped Wall Street estimates the last two quarters and is coming off a quarter where it beat by 5 cents per share, after reporting net income of 20 cents per share versus Wall Street estimates of 15 cents per share. If Flotek can hit Wall Street revenue estimates for this quarter it will represent a 38% rise from the same period last year. This company will be aiming to achieve its fifth quarter in a row of double-digit revenue growth. Flotek has averaged year-over-year revenue growth of 77.9% over the last four quarters.

The current short interest as a percentage of the float for Flotek Industries is rather high at 13.9%. That means that out of the 40.68 million shares in the tradable float, 6.43 million shares are sold short by the bears.

>>7 Stocks Soaring in a Weak Market

From a technical perspective, FTK is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been in a monster uptrend from the past six months, with shares soaring from a low of $7.97 to a recent high of $14.73 a share. During that uptrend, this stock has mostly made higher lows and higher highs, which is bullish technical price action. Now shares of FTK are trading within range of triggering a major breakout trade post-earnings.

If you’re bullish on FTK, I would wait until after it releases earnings and target long-biased trades if this stock can manage to break out above its 52-week high of $14.73 a share with high-volume. Look for volume on that move that’s close to or well above its three-month average volume of 1,553,880 shares. If we get that action, then FTK should continue its uptrend towards $17 to $20 a share in the near-term.

I would simply avoid FTK or look for short-biased trades if after earnings that breakout fails to hit, and then the stock drops back below some near-term support at $11.50 a share with high-volume. If we get that move, then target a drop towards $10 or its 200-day moving average of $9.48 a share if the bears hammer this down post-earnings.

Quad/Graphics

One potential earnings short-squeeze play in the printing services complex is Quad/Graphics (QUAD), which is set to release numbers on Wednesday after the market close. This is a global provider of print and related products and services that are designed to provide integrated multichannel solutions to marketers and publishers in North America, Latin America and Europe. Wall Street analysts, on average, expect Quad/Graphics to report revenue of $937.84 million on earnings of 15 cents per share.

If you’re looking for a high-yielding beaten-down bear favorite ahead of its earnings report, then make sure to check out shares of Quad/Graphics. This stock has plunged 36% in the last six months, and shares are currently trading just one point off its 52-week low of $11.25 a share. This stock sports a bountiful dividend yield of 8.2%.

The current short interest as a percentage of the float for Quad/Graphics is extremely high at 25.2%. That means that out of the 22.29 million shares in the tradable float, 5.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13.5%, or by about 597,000 shares.

From a technical perspective, QUAD is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has sold off hard from its March high of $16.24 to its recent low of $12.01 a share. That said, during the last month and change shares of QUAD have found buying interest at around $12 a share. If that level can hold up as support post-earnings, then this stock could see a powerful snapback rally.

If you’re a bull on QUAD, then I would wait until after they report and look for long-biased trades if this stock can hold $12 and then move back above its 50-day moving average of $13.36 a share with high-volume. Look for volume on that move that registers close to or above its three-month average action of 276,676 shares. If we get that move, then QUAD could make a run at $15 to $15.33 or possibly its 200-day moving average of $16.10 a share.

I would avoid QUAD or look for short-biased trades if the stock fails to trigger that move, and then drops back below that major near-term support at $12 a share with high-volume. Target a move lower below its next major support level at $11.03 a share if the bears gain full control of this stock post-earnings. A move below $11.03 would mark an all-time low for QUAD and certainly set this stock up for some capitulation selling.

Optimer Pharmaceuticals

One earnings short-squeeze candidate in the biotechnology and drugs complex is Optimer Pharmaceuticals (OPTR), which is set to release numbers on Thursday after the market close. This company is focused on discovering, developing and commercializing hospital specialty products. Wall Street analysts, on average, expect Optimer Pharmaceuticals to report revenue of $28.77 million on a loss of 38 cents per share.

If you’re looking for one stock that’s held up relatively well during the recent market weakness and seen strong upside volume flows, then make sure to take a strong look at shares of Optimer Pharmaceuticals.

The current short interest as a percentage of the float for Optimer Pharmaceuticals is very high at 21.4%. That means that out of the 45.36 million shares in the tradable float, 9.88 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 15.3%, or by about 1.3 million shares.

From a technical perspective, OPTR is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock sold off hard in early April from around $14 to a low of $11.87 a share on monster volume. Following that move lower, shares of OTPR have rebounded sharply towards its current price of $14.77 a share. That move now puts OPTR within range of triggering a major breakout trade post-earnings.

If you’re bullish on OPTR, I would look for long-biased trades after its report if this stock manages to break out above some major overhead resistance at $15.12 to $15.40 a share with high-volume. Look for volume on that move that registers near or well above its three-month average action of 645,698 shares. If we get that action, then OPTR should continue its uptrend momentum towards its 2011 high of $17.95 or possibly even $20 a share.

I would simply avoid OPTR 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 $13.57 a share with heavy volume. If we get that action, target a move lower towards its 200-day moving average of $12.48 or possibly even $11 a share if the bears spark a big selloff post-earnings.

Amtech Systems

My final earnings short-squeeze idea is semiconductor player Amtech Systems (ASYS), which is set to release numbers on Thursday after the market close. This company engages in the design, assembly, sale, and installation of capital equipment and related consumables used in the manufacture of wafers, primarily for the solar and semiconductor industries. Wall Street analysts, on average, expect Amtech Systems to report revenue of $21.55 million on a loss of 22 cents per share.

This is another beaten-down heavily-shorted stock that could be worth a solid look for a short-squeeze rebound trade post-earnings. Shares of Amtech Systems have dropped a whopping 32% over the last six months. That massive move lower has this stock trading just 50 cents off its 52-week low of $6.84 as we approach its earnings report.

The current short interest as a percentage of the float for Amtech Systems is notable at 10.7%. That means that out of the 8.93 million shares in the tradable float, 954,642 shares are sold short by the bears. This stock has a decent short-interest and an extremely low float. A bullish report could easily set this stock off on a monster short-squeeze.

From a technical perspective, ASYS is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending lower since its February high of $11.60 to its current price of $7.33 a share. During that downtrend, ASYS has consistently been making lower highs and lower lows, which is bearish technical price action. That said, the stock has just started to stabilize and find some buying interest just below $7 a share.

If you’re bullish on ASYS, I would wait until after its report and look for long-biased trades if this stock breaks out above some near-term overhead resistance at $7.54 and then its 50-day moving average of $7.86 a share with high-volume. Look for volume on that move that’s near or well above its three-month average action of 118,998 shares. If we get that breakout, then look for ASYS to make a run at $9 to its 200-day moving average of $9.64 a share if the bulls gain full control of this stock post-earnings.

I would simply avoid ASYS or look for short-biased trades if it fails to trigger that breakout, and then drops below some major near-term support levels at $6.87 to $6.84 a share with high-volume. If we get that action, then I would target a drop towards $5 a share if the bears dump this stock 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.

RELATED LINKS:

>>5 Stocks With New CEOs to Stay Away From
>>7 Stocks Making Big Moves on Huge Volume

>>5 Rocket Stocsk Ready for Blastoff

Follow Stockpickr on Twitter and become a fan on Facebook.

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.