Stock Quotes in this Article: FHN, HOMB, IGTE, INTC, MATW

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 time frame 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 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.

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Igate

My first earnings short-squeeze play today is IT-enabled operations and services player Igate (IGTE), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Igate to report revenue of $272.14 million on earnings of 39 cents per share.

The current short interest as a percentage of the float for Igate stands at 3.5%. That means that out of the 25.08 million shares in the tradable float, 1.11 million shares are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spark a solid short-covering rally if the bulls get the earnings news they’re looking for.

From a technical perspective, IGTE is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been trading sideways for the last month, with shares moving between $15.50 on the downside and $16.73 on the upside. A move above the upper-end of that range post-earnings will trigger a near-term breakout trade for shares of IGTE.

If you’re bullish on IGTE, 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 $16.70 to $16.73 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 166,284 shares. If that breakout hits, then IGTE will set up to re-test or possibly take out its next major overhead resistance levels at $18 to $19.50 a share.

I would simply avoid IGTE or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support levels at $15.73 to $15.66 a share with heavy volume. If we get that move, then IGTE will set up to re-test or possibly take out its next major support levels at $15 to $14.67 a share. Any move below $14.67 would then push IGTE into new 52-week-low territory, which is bearish technical price action.

Home Bancshares

Another potential earnings short-squeeze trade idea is regional banking player Home Bancshares (HOMB), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Home Bancshares to report revenue of $53.92 million on earnings of 65 cents per share.

The current short interest as a percentage of the float for Home Bancshares sits at 4.4%. That means that out of the 22.32 million shares in the tradable float, 1.01 million shares are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spark a solid short-squeeze if the company can deliver the earnings news the bulls are looking for.

From a technical perspective, HOMB is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trading sideways for the last month and change, with shares moving between $32 on the downside and $34.12 on the upside. A move above the upper-end of that range post-earnings will trigger a breakout trade for shares of HOMB.

If you’re in the bull camp on HOMB, 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 $34.12 to $34.27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 80,175 shares. If that breakout hits, then HOMB will set up to re-test or possibly take out its next major overhead resistance levels at $35.56 to $35.84 a share. Any move above $35.84 would then push HOMB into new 52-week-high territory, which is bullish technical price action.

I would simply avoid HOMB 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 its 50-day of $33.17 and then $32 a share with high volume. If we get that move, then HOMB will set up to re-test or possibly take out its 200-day moving average of $30.99 a share.

Matthews International

One potential earnings short-squeeze candidate is Matthews International (MATW), which is set to release numbers on Thursday after the market close. This is a designer, manufacturer and marketer principally of memorialization products and brand solutions. Wall Street analysts, on average, expect Matthews International to report revenue of $220.48 million on earnings of 43 cent per share.

If you’re looking for a stock with a decent short interest that’s been uptrending strongly heading into its quarterly earnings report, then make sure to check out shares of Matthews International. This stock has returned 11.6% during the last three months and shares are currently trading just two points off its 52-week high of $34.36 a share.

The current short interest as a percentage of the float for Matthews International is pretty high at 8.3%. That means that out of the 26.60 million shares in the tradable float, 2.22 million shares are sold short by the bears. Any bullish earnings news could easily spark a large short-squeeze for MATW post-earnings.

From a technical perspective, MATW is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly for the last two months, with shares soaring from its low of $27.32 to its recent high of $33.46 a share. During that uptrend, shares of MATW have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed MATW within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on MATW, 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 $33.46 to $34.36 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 90,007 shares. If that breakout triggers, then MATW will set up to re-test or possibly take out its next major overhead resistance levels at $36 to $37.19 a share.

I would avoid MATW 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 $32.50 to $31.43 a share with high volume. If we get that move, then MATW will set up to re-test or possibly take out its 50-day at $30.99 a share or its 200-day at $30.33 a share.

First Horizon National

Another earnings short-squeeze play is regional banking player First Horizon National (FHN), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect First Horizon National to report revenue of $338.79 million on earnings of 17 cents per share.

If you’re looking for a stock with a decent short interest that’s been uptrending heading into its earnings report, then make sure to take a hard look at shares of First Horizon National. This stock has risen 12.8% during the last six months and shares are currently trading just one point off its 52-week high of $10.99 a share.

The current short interest as a percentage of the float for First Horizon National is rather high at 7.9%. That means that out of the 243.16 million shares in the tradable float, 19.25 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 0.4%, or by about 79,000 shares.

From a technical perspective, FHN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has ripped higher during the last three months, with shares moving up from its low of $8.90 to its recent high of $10.53 a share. During that move, shares of FHN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed FHN within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on FHN, 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 $10.25 to $10.53 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 3.8 million shares. If that breakout triggers, then FHN will set up to re-test or possibly take out its next major overhead resistance levels at $10.95 to $12 a share.

I would avoid FHN 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 its 50-day of $9.66 a share with heavy volume. If we get that move, then FHN will set up to re-test or possibly take out its 200-day moving average of $9.13 a share. Any move below its 200-day will then put $8.90 into focus for shares of FHN.

Intel

My final earnings short-squeeze trade idea today is semiconductor chip maker Intel (INTC), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Intel to report revenue of $13.76 billion on earnings of 45 cents per share.

During the last quarter, Intel beat Wall Street estimates by 10 cents, after reporting a net income of 60 cents per share versus the estimate of a profit of 50 cents per share. That marked the fourth straight quarter where the company beat Wall Street estimates.

The current short interest as a percentage of the float for Intel stands at 4.3%. That means that out of the 4.97 billion shares in the tradable float, 215.50 million shares are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spark a solid short squeeze if Intel can deliver the earnings news the bulls are looking for.

From a technical perspective, INTC is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending modestly for the last two months, with shares moving higher from its low of $19.23 to its recent high of $22.13 a share. During that uptrend, shares of INTC have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed INTC within range of triggering a near-term breakout trade post-earnings.

If you’re in the bull camp on INTC, 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 $22.31 to $23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 48.9 million shares. If that breakout triggers, then INTC will set up to re-test or possibly take out its next major overhead resistance levels at $23.96 to $24.84 a share. Any move above $24.84 will then put $26 to $26.63 into focus for shares of INTC.

I would avoid INTC 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 $21 to its 50-day at $20.63 a share with heavy volume. If we get that move, then INTC will set up to re-test or possibly take out its next major support levels at $20.16 to $19.42 a share. Any move below $19.23 a share will then push INTC into new 52-week-low territory, which is bearish technical price action.

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 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.