Stock Quotes in this Article: CNQR, ENTR, GMCR, LVS, RLD

WINDERMERE, Fla. (Stockpickr) -- With quarterly earnings season now in full swing on Wall Street, it’s time for market-players to create a powerful watch list of stocks due to report numbers that also sport a decent short interest.

Short-sellers hate being caught short a stock that produces bullish results. When this happens, we often see 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 kicks off 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 trade 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 -- but only if you have a strong conviction that the stock is going to rip higher, and its acting technically bullish.

Here’s a look at a number of stocks that could experience big short squeezes when they report earnings this week.

 

Green Mountain Coffee Roasters

My first earnings short-squeeze idea is food processing player Green Mountain Coffee Roasters (GMCR), which is set to report its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Green Mountain Coffee Roasters to report revenue of $1.06 billion on earnings of 36 cents per share.

In each of the last four quarters, Green Mountain Coffee Roasters has reported double-digit year-over-year revenue growth. Over that timeframe, revenue has trended higher by an average of 96.5%. The company’s net income has trended higher for the past three straight quarters.

The current short interest as a percentage of the float for Green Mountain Coffee Roasters is extremely high at 20.7%. That means that out of the 128.46 million shares in the tradable float, 26.49 million shares are sold short by the bears. This is a massively high short-interest, so if this company can report positive results and bullish guidance the stock will skyrocket and short-squeeze big.

From a technical standpoint, GMCR is currently trading above both its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock was hammered by the bears from its September high of $115.98 to a recent low of $34.06 a share. Since printing that low, the stock has rebound sharply back above its 50-day and right up to its current price that sits just above $53 a share.

If you’re bullish on GMCR, I would look to get long after they report their results if the stock breaks out above $53.80 to $54.83 a share with strong volume. Look for volume that’s tracking in close to or above its three-month average of 7,190,800 shares. If those levels get taken out post-earnings with volume, then look for GMCR to make a run at its next significant overhead resistance level of $60.19 a share, or potentially much higher.

I would only get short or avoid GMCR if after earnings this stock fails to break out and it then drops back below its 50-day moving average of $49.77 a share with volume. I would add to any short positions if GMCR then takes out $47.43 with volume. Target a drop back towards some near-term support zones at $43 to $41.21 a share or possibly below those levels if the bears hammer this stock lower post-earnings.

I also featured Green Mountain, which shows up on a list of 6 Good Buys for a Portfolio, in "5 Stocks Poised to Break Out."

Entropic Communications

Another potential earnings short-squeeze trade is semiconductor player Entropic Communications (ENTR), which is set to report results on Wednesday after the market close. Wall Street analysts, on average, expect Entropic Communications to report revenue of $55.63 million on earnings of 11 cents per share.

If you’re looking for a small-cap stock that’s trading within range of triggering a major breakout post-earnings, then take a hard look at shares of Entropic Communications. This stock has been uptrending strong since bottoming in October, and it’s now within range of breaking out above some major overhead resistance.

The current short interest as a percentage of the float for Entropic Communications is very high at 17.1%. That means that out of the 85.69 million shares in the tradable float, 14.03 million are sold short by the bears.

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From a technical standpoint, ENTR is currently trading above its 50-day moving average and right below its 200-day moving average, which is neutral trendwise. This stock bottomed in October at $3.55 a share, and since then it has uptrended strong and consistently made higher lows and higher highs, which is bullish price action.

If you’re bullish on ENTR, I would wait until after it reports its results and buy the stock once it breaks out above some near-term overhead resistance at $6.17 to $6.25 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 1.3 million shares.

If we get that high-volume breakout, then I would look for ENTR to fill a major gap down from $7 a share back in August. This stock could even potentially trade up to $8 off a decent short-squeeze.

Concur Technologies

One earnings short-squeeze trade idea in the software and programming complex is Concur Technologies (CNQR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Concur Technologies to report revenue of $98.81 million on earnings of 19 cents per share.

If you’re looking for a stock that’s uptrending extremely strong heading into its earnings report, then take a good look at shares of Concur Technologies. This stock is trading just five points off its 52-week high of $58.19 as we head into their quarterly report.

The current short interest as a percentage of the float for Concur Technologies is rather high at 15.6%. That means that out of the 52.06 million shares in the tradable float, 6.93 million are sold short by the bears. The bears have been increasing their short positions from the last reporting period by around 7.5%, or by about 482,700 shares.

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From a technical standpoint, CNQR is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since it formed a double bottom back in October at around $34.50 a share. After putting in that bottom, CNQR has trend higher and consistently made higher lows and higher highs, which is bullish price action. Now the stock sets up for a big breakout post-earnings if the company can deliver strong results.

The way I would play CNQR is to wait until after they report their earnings and buy the stock if it breaks out above $54.49 to $55 a share on big volume. Look for volume that’s tracking in close to or above its three-month average volume of 516,197 shares. If we get that move, I would look for CNQR to challenge its 52-week high of $58.19 and potentially blow through that level and tag $60 a share.

I would only consider shorting CNQR after earnings if the stock fails to breakout and then drops below $51.29 to $50.27 (50-day) a share on heavy volume. I would target a drop back towards some previous support at $47 or below its 200-day moving average of $46.50 a share.

Las Vegas Sands

Another earnings short-squeeze candidate is casinos and gaming operator Las Vegas Sands (LVS), which is set to release numbers on Wednesday after the close. Wall Street analysts, on average, expect Las Vegas to report revenue of $2.47 billion on earnings of 57 cents per share.

Barclays analyst Felicia Hendrix recently said that the gaming companies should report very robust results for the fourth quarter, driven by robust market growth in Vegas and the continued solid performance in Macau. Hendrix said she expects Las Vegas Sands, MGM International (MGM) and Boyd Gaming (BYD) to beat Wall Street estimates.

The current short interest as a percentage of the float for Las Vegas Sands is worth mentioning at 3%. That means that out of the 382.10 million shares in the tradable float, 11.60 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 14.7%, or by about 1.48 million shares.

From a technical standpoint, LVS is currently trading well above both its 50-day and 200-day moving averages, which is bullish. This stock has trended up strong since it found big buying support at $40.03 in December, which also happened to be where it formed a double bottom. Now LVS is trading within range of a major breakout that could easily get triggered post-earnings if the company delivers strong results.

If you’re bullish on LVS, I would wait until after its report earnings and buy some shares if it breaks out above $50.68 a share on big volume. Look for volume that’s tracking in close to or above its three-month average action of 10,813,300 shares. If we get that high-volume breakout, then I would add to LVS if it moves above $51.05 to $52.08 a share. Once all those levels are cleared on solid volume, then LVS has a great chance to make a run at its 2010 high of $55.47.

I would only get short or avoid LVS after earnings if it fails to breakout over $50.68 and then trades below $48 a share on heavy volume. If we get that action, I would then add to any short positions if the stock takes out $46 a share with volume. Target a drop back towards its 200-day moving average of $44.06 a share, or possibly below that level if the bears gain control of this stock post-earnings.

Las Vegas Sands shows up on a list of 5 Casino Stocks to Bet On in 2012.

RealD

An earnings short-squeeze play in the photography complex is global licensor of 3D technologies RealD (RLD), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect RealD to report revenue of $42.26 million on a loss of 5 cents per share.

During the last quarter, RealD beat Wall Street estimates after they reported a profit of $18.9 million (33 cents per share) versus a year earlier when they reported a loss of $4 million (12 cents per share). Revenue for that quarter jumped 34.7% to $88 million from $65.3 million. RealD has topped Wall Street estimates for the past three quarters.

The current short interest as a percentage of the float for RealD is notable at 13%. That means that out of the 43.12 million shares in the tradable float, 5.29 million are sold short by the bears.

From a technical standpoint, RLD is currently trading just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock was rocked by the bears after it dropped from its September high of over $14 to a recent low of $7.85 a share. After hitting that low, the stock re-tested that area again in December at $7.89 and formed a perfect double bottom. Since then, RLD has been uptrending strong and has now moved back above its 50-day moving average and within range of a big breakout.

If you’re bullish on RLD, I would wait until after its report and buy the stock if it triggers a near-term breakout above $9.37 with strong volume. Look for volume that’s tracking in close to or above its three-month average action of 508,816 shares. If we get that action, I would then add to any long positions if RLD takes out 10.78 a share with volume. Target a run back towards $11.50 a share or possibly much higher if the bulls ramp this stock higher post-earnings.

I would only look to short RLD or avoid this stock after earnings if it fails to breakout over $9.37 and then drops back below its 50-day moving average of $8.87 with volume. If we see that action, then look for RLD to re-test that major support zone at around $7.88 to $7.85 a share, or possibly trend much lower if the bears whack this post-earnings.

To see more potential earnings short squeeze plays, including Interactive Intelligence Group (ININ), Vertex Pharmaceuticals (VRTX) and The Hain Celestial Group (HAIN), 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.