Stock Quotes in this Article: BOOM, RBCN, SD, TIVO, XCO

WINDERMERE, Fla. (Stockpickr) -- With quarterly earnings season 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-squeezes develop as the bears rush to cover their positions to avoid big losses. Even the savviest short-sellers know that it’s not wise to be caught short a stock 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.

>>5 Big Stocks to Trade for Gains

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 the stock is acting technically bullish and you have a strong conviction that it is going to rip higher.

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

SandRidge

My first earnings short-squeeze trade candidate is oil and gas player SandRidge (SD), which is set to report its numbers on Thursday after the market close. Wall Street analysts, on average, expect SandRidge to report revenue of $359.50 million on a loss of 2 cents per share.

The current short interest as a percentage of the float for SandRidge is rather high at 10.2%. That means that out of the 343.97 million shares in the tradable float, 37.51 million shares are sold short by the bears. If SandRidge can deliver strong results that the bulls love, then look for the stock to spike solidly to the upside as the shorts rush to cover some of their bets.

From a technical perspective, SD is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently found some big buying support at around $6.20 to $6.26 a share, and then it surged to a high of $9.04 before settling at its current price of just over $8 a share.

If you’re bullish on SD, I would look for long-biased trades following its report if the stock can manage to break out above some near-term overhead resistance at $8.42 to $8.60 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average action of 12,529,700 shares. If those levels get taken out with volume, I would look for SD to make a serious attempt at tagging and taking out $9.04 a share.

I would avoid SD or look for short-biased trades if after earnings the stock fails to break out and then drops below its 50-day moving average of $7.83 with volume. If we get that action, I would target a drop back towards $6.75 to $6.20 a share if the bears hammer this lower post-earnings.

SandRidge, one of T. Boone Pickens' holdings, shows up on a recent list of Natural Gas Stock Trades That Look Past Low Prices.

TiVo

Another potential earnings short-squeeze candidate is digital video recorder (DVR) maker Tivo (TIVO), which is set to report results on Thursday after the market close. Wall Street analysts, on average, expect Tivo to report revenue of $50.89 million on a loss of 21 cents per share.

TiVo has managed to post earnings that have beaten Wall Street estimates for the last three quarters in a row. During the last quarter, the company posted a net loss of 21 cents per share versus Wall Street estimates of a loss of 23 cents per share. TiVo’s revenue has trended higher for two straight quarters. During the second quarter, revenue rose by 18.7%.

The current short interest as a percentage of the float for Tivo is worth mentioning at 11.4%. That means that out of the 113.19 million shares in the tradable float, 13.64 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3%, or by about 720,700 shares.

>>5 Stocks Under $10 Setting Up to Trade Higher

From a technical perspective, TIVO is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock tagged a recent low in December at $8.75 a share, and since then it has skyrocketed towards its current price of around $12 a share. That huge up swing now puts TIVO within range of triggering a big breakout post-earnings if it can deliver the news the bulls are looking for.

If you’re bullish on TIVO, I would wait until after it report its results and look for long-biased trades once the stock breaks out above some overhead resistance levels at $12.32 to $12.65 a share on strong volume. Look for volume that’s tracking in close to or above its three-month average action of 2.4 million shares. If we get that action, look for monster spike higher in TIVO since its next significant overhead resistance levels sits at $16 a share.

I would simply avoid TIVO or look for short-biased trades if this stock fails to break out post-earnings and then drops below some near-term support at $11.75 a share with high volume. If we get that action, I would target a drop back toward $10.50 to $10.25 a share, or possibly lower if the bears whack this stock down post-earnings.

Dynamic Materials

One earnings short-squeeze idea in the basic materials complex is Dynamic Materials (BOOM), which is set to release numbers on Thursday after the market close. This company is a provider of explosion-welded clad metal plates. Wall Street analysts, on average, expect Dynamic Materials to report revenue of $49.71 million on earnings of 20 cents per share.

If you’re looking for a small-cap stock that’s within range of triggering a major breakout post-earnings, then make sure to take a hard look at shares of Dynamics Materials. This stock is trading just five points off its 52-week high of $29.69 as we approach their earnings report.

The current short interest as a percentage of the float for Dynamic Materials sits at 3.9%. That means that out of the 13.35 million shares in the tradable float, 489,000 are sold short by the bears. This stock doesn’t have a huge short interest, but it’s a decent one and the float is extremely small. Small floats tend to produce large short squeezes, so make sure to have this name on your earnings trading radar.

>>Materials Stocks Bought and Sold by Hedge Funds

From a technical perspective, BOOM is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since mid-December, rising from $18.66 to its current price of around $24.20 a share. During that uptrend, the stock has consistently made higher lows and higher highs, which is bullish price action. Now shares of BOOM are within range of triggering a big breakout trade.

If you’re bullish on BOOM, wait until after earnings and look for long-biased trades if the stock breaks out above some near-term overhead resistance at $24.53 a share with high volume. Look for volume that’s tracking in close to or above its three-month average action of 56,026 shares. If we get that action, I fully expect BOOM to re-test its April high of $28.25 a share if the bulls gain full control of this stock post-earnings.

I would avoid BOOM or look for short-biased trades if after earnings the stock fails to break out and then drops below some near-term support at $23 a share with high-volume. If we get that action, target a drop back towards its 50-day moving average of $21.63 a share or possibly even lower if the bears beat this stock down post-earnings.

Rubicon Technology

One earnings short-squeeze play in the semiconductor complex is Rubicon Technology (RBCN), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Rubicon Technology to report revenue of $20.16 million on earnings of 7 cents per share.

If you’re looking for a beaten-down heavy shorted stock that could possibly experience a snapback short-squeeze rally off earnings, then make sure to check out shares of Rubicon Technology. This stock is trading well off its 52-week high of $29.79 as we approach its earnings report this week.

The current short interest as a percentage of the float for Rubicon Technology is extremely high at 26.3%. That means that out of the 17.05 million shares in the tradable float, 4.49 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.4%, or by about 146,000 shares.

>>4 Chip Stocks Smart Money Is Buying

From a technical perspective, RBCN is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently bottomed at $8.23 in November, and since then soared towards its current price of $12.30 a share. During that up move, shares of RBCN have been consistently making higher lows and higher highs, which is bullish price action. Now the stock is trading within range of breaking out above some near-term overhead resistance levels.

If you’re bullish on RBCN, I would wait until after it reports and look for long-biased trades once it breaks out above $12.89 to $13.59 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 438,415 shares. If we get that action, I would target a run back towards its next significant overhead resistance levels at $14 to $14.52, or possibly even $16 a share if the bulls gain full control of this stock post-earnings.

I would avoid RBCN or look for short-biased trades if after earnings it fails to break out and then drops below some near-term support at $11.32 and then its 50-day moving average of $10.98 a share with volume. If we get that action, target a drop back towards $10.40 to $9.50 a share if the bears hammer this lower post-earnings.

Exco Resources

My final earnings short-squeeze candidate is independent oil and natural gas player Exco Resources (XCO), which is set to release numbers on Thursday after the close. Wall Street analysts, on average, expect EXCO Resources to report revenue of $225.49 million on earnings of 17 cents per share.

Exco is another beaten-down stock with a decent short interest. This stock currently changes hands at around $7.30 a share which is well off its 52-week high of $21.04 a share. Any bullish earnings news out of EXCO Resources could easily spark a massive short-squeeze post-earnings.

The current short interest as a percentage of the float for EXCO Resources is pretty high at 8.3%. That means that out of the 133.01 million shares in the tradable float, 14.36 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 15.5%, or by about 1.92 million shares. If the bears are caught learning too hard into this quarter, then this stock could spike 10% or more as the shorts rush in to cover some of their positions.

From a technical perspective, XCO is currently below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend since it topped out back in November at around $13.40 to $13.50 a share. During that downtrend, XCO has consistently made lower highs and lower lows, which is bearish price action. That said, a bullish report could spike XCO into a breakout territory post-earnings.

If you’re bullish on XCO, I would wait until after it reports earnings and look for long-biased trades if the stock manages to hold its near-term low of $6.80, and then break out above some near-term overhead resistance levels at $7.93 to $8 a share with high-volume. Look for volume that registers near or well above its three-month average action of 4,600,140 shares. If we get that action, I would then add to any long positions once XCO takes out its 50-day at $8.60 and more overhead resistance at $8.77 with strong volume.

I would avoid XCO or look for short-biased trades after earnings if this stock takes out that major near-term support at $6.80 with high-volume. If we see that action, I would target a pretty decent drop since that will mean that XCO is printing new 52-week lows post-earnings.

To see more potential earnings short squeeze plays, including Salesforce.com (CRM), World Fuel Services (INT) and OmniVision Technologies (OVTI), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

 

RELATED LINKS:

 

 

 

 

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.