Stock Quotes in this Article: AMKR, NUAN, SIRI, STMP, DNKN

 WINDERMERE, Fla. (Stockpickr) -- Short-sellers hate being caught short a stock that produces earnings that please the bulls. 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.

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

Sirius XM Radio

My first earnings short-squeeze trade idea is satellite radio player Sirius XM Radio (SIRI), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Sirius XM Radio to report revenue of $785.49 million on earnings of 1 cent per share.

During the last quarter, this company beat Wall Street estimates by 1 cent, reporting a profit of 2 cents per share. Sirius also beat estimates in the second quarter. Revenue has trended higher for Sirius for the past four consecutive quarters.

The current short interest as a percentage of the float for Sirius XM Radio is notable at 8.2%. That means that out of the 3.68 billion shares in the tradable float, 305.10 million shares are sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 1.2%, or by about 3.71 million shares.

From a technical perspective, SIRI is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently found some big buying support at around $2.00 to $2.03 a share, and since then it has trended higher towards its current price of $2.12 a share. The recent uptrend for SIRI has registered a number of upside volume days that were well above the average volume. This could mean that large traders are accumulating the stock ahead of the quarter.

If you’re bullish on SIRI, I would look to buy this stock after its earnings report if it can manage to trigger a breakout trade above $2.16 to $2.19 a share on high-volume. Look for volume that’s tracking close to or well above its three-month average action of 54,439,300 shares. If we get that action, I would look for SIRI to make a run at $2.35 to $2.44 a share or possibly much higher of the bulls gain full control of this stock post-earnings. I would simply avoid any long-biased trades in SIRI if it fails to trigger that breakout after they report their results.

I also featured Siri, which shows up on a list of 5 Stocks to Watch Under $5, in " 5 Stocks Under $10 Set to Trigger Big Moves."

Stamps.com

Another potential earnings short-squeeze trade is Internet-based postage solutions player Stamps.com (STMP), which is set to report results on Thursday after the market close. Wall Street analysts, on average, expect Stamps.com to report revenue of $26.62 million on earnings of 25 cents per share.

If you’re looking for a stock that’s uptrending extremely strong heading into the quarter, then make sure to look at shares of Stamps.com. This stock is up 23% so far in 2012, and it’s now trading just one point off its 52-week high of $33.73 as we move closer to their report.

The current short interest as a percentage of the float for Stamps.com is rather high at 12.9%. That means that out of the 12.57 million shares in the tradable float, 1.69 million shares are sold short by the bears. This is a low float high short interest situation, so look for STMP to skyrocket post-earnings if the company gives the bulls what they’re looking for.

From a technical perspective, STMP is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom at around $23 a share, and since then it has trended higher towards its current price of $32.33 a share. This strong uptrend now puts the stock within range of triggering a big breakout post-earnings.

If you’re bullish on STMP, I would wait until after it report its results and buy the stock once it breaks out above $32.91 to $33.73 with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 363,365 shares. If we get that move, I expect to see STMP rip higher by 10% or more after the report.

I would avoid any long trades or short STMP after their earnings report if the stock fails to break out and it moves back below some near-term support at $30.10 on high volume. I would target a drop back towards its 50-day moving average of $27.57 a share, or possibly much lower towards $24 to $23 a share if the bears slam this stock post-earnings.

Stamps.com is one of TheStreet Ratings' top-rated Internet stocks. I also featured it recently in "8 Stocks Rising on Monster Volume."

Nuance Communications

An earnings short-squeeze candidate in the software sector is Nuance Communications (NUAN), which is set to release numbers on Thursday after the market close. This company is a provider of voice and language solutions for businesses and consumers around the world. Wall Street analysts, on average, expect Nuance Communications to report revenue of $386.20 million on earnings of 36 cents per share.

If you’re looking for a stock that’s trending strong heading into the quarter, then make sure to check out shares of Nuance Communications. This stock is trading just one point off its 52-week high of $29.96 as we head closer to their quarterly report this week.

The current short interest as a percentage of the float for Nuance Communications sits at 6.2%. That means that out of the 232.77 million shares in the tradable float, 14.20 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 17.2%, or by about 2.08 million shares.

From a technical perspective, NUAN is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since it bottomed last August at $15.56 a share. During that uptrend, the stock has been consistently making higher lows and higher highs, which is bullish price action. Now the stock is within range of breaking out post-earnings if the company can give the bulls what they’re looking for.

If you’re bullish on NUAN, I would wait until after it reports its earnings and buy some shares if it can manage to break out above major overhead resistance at $29.96 a share with heavy volume. Look for volume that’s tracking in close to or above its three-month average volume of 4,100,590 shares. If we get that action, then look for NUAN to spike big since the stock will be trading in all-time high territory.

I would avoid any long trades or look to short NUAN if the stock fails to break out post-earnings and then drops below $27.39 to $26.35 (50-day) on heavy volume. Target a drop back towards its 200-day moving average of $22.38 if the bears hammer this lower post-earnings with volume.

Nuance shows up on a list of 13 Tech Stocks to Buy in 2012.

Dunkin’ Brands Group

An earnings short-squeeze play in the consumer cyclical complex is Dunkin’ Brands Group (DNKN), which is set to release numbers on Thursday before the market open. This is a franchisor of quick service restaurants serving hot and cold coffee and baked goods, as well as hard serve ice cream. Wall Street analysts, on average, expect Dunkin’ Brands Group to report revenue of $160.02 million on earnings of 28 cent per share.

If you’re looking for a stock that’s within range of breaking out above its IPO highs, then take a strong look at shares of Dunkin’ Brands Group this week ahead of their earnings report. This stock is trending very strong heading into the quarter with shares just a few points off its 52-week high of $31.94.

The current short interest as a percentage of the float for Dunkin’ Brands Group is rather high at 10.4%. That means that out of the 51.34 million shares in the tradable float, 5.36 million are sold short by the bears. The bears have also been increasing their short positions from the last reporting period by 17%, or by about 777,500 shares. If the bears get caught leaning too hard into this quarter, then we could easily see a large short-squeeze develop for DNKN.

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From a technical perspective, DNKN is currently trading above its 50-day moving average, which is bullish. This stock found some buying love back in January at around $25.50 a share, and since then it has trended higher towards its current price of $28.80 a share. The recent strength in DNKN now puts the stock within range of a major breakout if the company can deliver strong earnings and forward guidance.

If you’re bullish on DNKN, I would look to get long the stock after it reports earnings if it can manage to break out above $30 to $32 a share with strong volume. Look for volume that registers near or above its three-month average volume of 1.05 million shares. If we get that action, I would look for a sharp short-squeeze since DNKN will enter all-time high territory.

I would simply avoid any long trades or look for shorting opportunities in DNKN if the stock fails to break out after they report earnings. Target a drop back towards the 50-day moving average of $25.83 a share, if we see heavy volume selling following the quarter.

Amkor Technology

Another earnings short-squeeze trade is semiconductor player Amkor Technology (AMKR), which is set to release numbers on Thursday after the market close. This company is a provider of outsourced semiconductor packaging (assembly) and test services. Wall Street analysts, on average, expect Amkor Technology to report revenue of $686.36 million on earnings of 7 cents per share.

Revenue has trended down for Amkor in the past two quarters. During the third quarter, revenue came in at $740 million, or 6.8% lower than a year-ago. IN the quarter before that, revenue dropped 8.2%. The current short interest as a percentage of the float for Amkor Technology is very high at 14.8%. That means that out of the 82.84 million shares in the tradable float, 13.17 million shares are sold short by the bears.

From a technical perspective, AMKR is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a double bottom last December at $4.06 to $4.07 a share. After marking that bottom, the stock skyrocketed towards its current price of $5.99 a share. Now the stock is within range of a near-term breakout if the company can report solid earnings and bullish guidance.

If you’re bullish on AMKR, I would wait until after it reports earnings and buy the stock if it breaks out above $6.15 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 1,457,920 shares. If we get that action, I would then add to any long positions once AMKR takes out more overhead resistance at $6.59 a share. Target a run towards $7 to $7.50 if the bulls gain control of this stock post-earnings.

I would simply avoid any long trades or look to short AMKR if the stock fails to break out above $6.15 post-earnings. Target a drop back towards the 200-day moving average of $5.18 a share, if some near-term support at $5.60 gets taken out with heavy volume.

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.