Stock Quotes in this Article: JOE, MM, PPO, QUAD, Z

MADISON, Wis. (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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Quad Graphics

My first earnings short-squeeze play is global provider of print and related products and services for marketers and publishers Quad Graphics (QUAD), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Quad Graphics to report revenue of $1.15 billion on earnings of 15 cents per share.

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The current short interest as a percentage of the float for Quad Graphics is extremely high at 28.4%. That means that out of the 25.91 million shares in the tradable float, 6.39 million shares are sold short by the bears. This is a stock with a very high short interest and a relatively low tradable float. Any bullish earnings news could easily set off a large short-squeeze for shares of QUAD post-earnings.

From a technical perspective, QUAD is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been downtrending for the last month and change, with shares dropping from its high of $24.59 to its recent low of $19.60 a share. During that move, shares of QUAD have been making lower highs and lower lows, which is bearish technical price action. That said, shares of QUAD have recently started to bounce right above its 200-day moving average and it's now quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on QUAD, 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 at $21.66 a share and then once it clears its 50-day at $22.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 159,000 shares. If that breakout triggers, then QUAD will set up to re-test or possibly take out its next major overhead resistance levels at $23.50 to $24.59 a share. Any high-volume move above $24.59 could then send shares of QUAD towards $30 a share.

I would simply avoid QUAD 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 $19.60 to its 200-day at $19 a share with high volume. If we get that move, then QUAD will set up to re-test or possibly take out its next major support levels at $17.50 to $15 a share.

Polypore International

Another potential earnings short-squeeze trade is global high-technology filtration player Polypore International (PPO), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Polypore International to report revenue of $175.90 million on earnings of 40 cents per share.

The current short interest as a percentage of the float for Polypore International is extremely high at 32.7%. That means that out of the 42.70 million shares in the tradable float, 15.23 million shares are sold short by the bears. If the bulls on Polypore International get the earnings news they're looking for, then this stock could explode higher post-earnings as the bears rush to cover some of their bets.

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From a technical perspective, PPO is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last few weeks, with shares moving higher from its low of $36.80 to its recent high of $42.68 a share. During that move, shares of PPO have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of PPO within range of triggering a major breakout trade.

If you're in the bull camp on PPO, 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 $42.68 to $43.13 a share and then once it clears more resistance at $44.27 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 478,000 shares. If that breakout triggers, then PPO will set up to re-test or possibly take out its next major overhead resistance levels at $48.50 to $55 a share.

I would simply avoid PPO or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day at $39.66 a share and its 200-day at $38.32 a share with high volume. If we get that move, then PPO will set up to re-test or possibly take out its next major support levels at $36.80 to $35.10 a share.

St. Joe

One potential earnings short-squeeze candidate is St. Joe (JOE), a land, timber and resort assets owner in Northwest Florida, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect St. Joe to report revenue of $25.10 million on a loss of 1 cent per share.

The current short interest as a percentage of the float for St. Joe is pretty high at 15.9%. That means that out of the 92.17 million shares in the tradable float, 14.68 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of JOE could easily rip higher post-earnings.

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From a technical perspective, JOE is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares falling from its high of $24.44 to its recent low of $18.83 a share. During that downtrend, shares of JOE have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of JOE have recently started to bounce off that $18.83 low and it's now quickly moving within range of triggering a near-term breakout trade.

If you're bullish on JOE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above both its 50-day at $20.49 a share and its 200-day at $20.83 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 417,000 shares. If we get that breakout, then JOE will set up to re-test or possibly take out its next major overhead resistance levels at $22 to $23.50 a share. Any high-volume move above $23.50 will then put $24.50 to $26 into range for shares of JOE.

I would avoid JOE 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 $18.83 to $18.79 a share with high volume. If we get that move, then JOE will set up to re-test or possibly take out its next major support levels at $16.50 to $15.50 a share.

Millennial Media

Another earnings short-squeeze prospect is mobile advertising platform player Millennial Media (MM), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Millennial Media to report revenue of $49.53 million on a loss of 2 cents per share.

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The current short interest as a percentage of the float for Millennial Media is extremely high at 21.6%. That means that out of the 33.39 million shares in the tradable float, 6.78 million shares are sold short by the bears. This is a big short interest on a stock with a relativity low float. If Millennial Media can deliver the earnings news the bulls are looking for, then this stock could easily explode higher post-earnings.

From a technical perspective, MM is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last month and change, with shares moving higher from its low of $5.87 to its recent high of $7.32 a share. During that uptrend, shares of MM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MM within range of triggering a major breakout trade post-earnings.

If you're bullish on MM, 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 $7.37 to $8 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.82 million shares. If that breakout triggers, then MM will set up to re-test or possibly take out its next major overhead resistance levels at $9 to $10 a share.

Zillow

My final earnings short-squeeze play today is real estate and home-related information marketplace player Zillow (Z), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Zillow to report revenue of $37.39 million on a loss of 3 cents per share.

The current short interest as a percentage of the float for Zillow is extremely high at 27.6%. That means that out of the 21.77 million shares in the tradable float, 5.4 million shares are sold short by the bears. This is a stock with a very high short interest and low tradable float. This is the perfect combination needed for a monster short-squeeze, so make sure to have this name on your post-earnings earnings trading radar.

From a technical perspective, Z is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares moving higher from its low of $23 to its recent high of $63.24 a share. During that move, shares of Z have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Z within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on Z, 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 $62.50 to $63.24 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 736,000 shares. If that breakout triggers, then Z will set up to enter new 52-week and all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $75 a share.

I would simply avoid Z 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 $60 a share with volume. If we get that move, then Z will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $53.39 a share to $51 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Madison, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Madison, Wis., 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.