Stock Quotes in this Article: GIII, HOV, PAY, MFRM, BV

 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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Bazaarvoice

My first earnings short-squeeze trade idea is social commerce solutions provider Bazaarvoice (BV), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Bazaarvoice to report revenue of $42.49 million on a loss of 13 cents per share.

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The current short interest as a percentage of the float for Bazaarvoice is pretty high at 10.6%. That means that out of the 32.19 million shares in the tradable float, 4.54 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then BV could soar higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, BV is currently trending above both its 50-day moving average and well below its 200-day moving averages, which is neutral trendwise. This stock recently bounced right off its 50-day moving average at $7.21 a share and is now moving within range of triggering a near-term breakout trade.

If you're bullish on BV, 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 $7.85 to $8.06 a share and then once it clears more resistance at $8.31 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 502,797 shares. If that breakout hits, then BV will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $9.84 a share to $11 a share.

I would simply avoid BV or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average at $7.21 a share with high volume. If we get that move, then BV will set up to re-test or possibly take out its next major support levels at $6.83 to $6.45 a share. Any high-volume move below those levels will then set up BV to take out its 52-week low at $6.37 a share.

G-III Apparel Group

Another potential earnings short-squeeze play is designer, manufacturer and marketer of women's and men's apparel G-III Apparel Group (GIII), which is set to release its numbers on Monday after the market close. Wall Street analysts, on average, expect G-III Apparel Group to report revenue of $267.77 million on a loss of 5 cents per share.

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The current short interest as a percentage of the float for G-III Apparel Group is notable at 7.4%. That means that out of the 14.37 million shares in the tradable float, 1.23 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a solid short-squeeze for shares of GIII.

From a technical perspective, GIII 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 soaring higher from its low of $31.52 to its recent high of $43.42 a share. During that uptrend, shares of GIII have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GIII within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on GIII, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high at $43.42 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 158,361 shares. If that breakout triggers, then GIII will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $45 to $50 a share.

I would simply avoid GIII or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average at $40.39 a share with high volume. If we get that move, then GIII will set up to re-test or possibly take out its next major support levels at $36.81 to its 200-day moving average at $36.73 a share.

Hovnanian Enterprises

Another potential earnings short-squeeze candidate is homebuilder Hovnanian Enterprises (HOV), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Hovnanian Enterprises to report revenue of $408.61 on a loss of 5 cents per share.

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The current short interest as a percentage of the float for Hovnanian Enterprises is extremely high at 30.9%. That means that out of the 112.22 million shares in the tradable float, 34.49 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of HOV could explode higher post-earnings.

From a technical perspective, HOV is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways for the last month, with shares moving between $5.75 on the downside and $6.35 on the upside. A high-volume move above the upper-end of its recent range could trigger a near-term breakout trade for shares of HOV post-earnings.

If you're bullish on HOV, 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 $6.35 to $6.43 a share and then once it takes out more resistance at $6.60 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 6.26 million shares. If we get that breakout, then HOV will set up to re-test or possibly take out its next major overhead resistance levels at $7.43 a share. Any high-volume move above $7.43 will then put $8 to $9 into range for shares of HOV.

I would avoid HOV or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average at $5.68 a share with high volume. If we get that move, then HOV will set up to re-test or possibly take out its next major support levels at $5.20 to $4.75 a share.

VeriFone Systems

Another earnings short-squeeze prospect is secure electronic payment solutions provider VeriFone Systems (PAY), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect VeriFone Systems to report revenue of $369.69 million on earnings of 44 cents per share.

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The current short interest as a percentage of the float for VeriFone Systems stands at 6.7%. That means that out of the 107.59 million shares in the tradable float, 7.19 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 17%, or by about 1.04 million shares. If the short-sellers are caught pressing too hard into a bullish quarter, then shares of PAY could rip significantly higher post-earnings.

From a technical perspective, PAY 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 trending sideways inside a consolidation pattern for the last month, with shares moving between $22.26 a share on the downside and $23.97 a share on the upside. A high-volume move above the upper-end of its recent range post-earnings could trigger a major breakout trade for shares of PAY.

If you're bullish on PAY, 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 $23.97 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.98 million shares. If that breakout triggers, then PAY will set up to re-fill some of its previous gap down zone from February that started above $32 a share. Some possible upside targets if PAY gets into that gap with volume are its 200-day moving average at $27.98 a share to $30 a share.

I would avoid PAY 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 $22.26 a share to its 50-day moving average at $21.66 a share with high volume. If we get that move, then PAY will set up to re-test or possibly take out its next major support levels at $20 to $18.10 a share.

Mattress Firm

My final earnings short-squeeze play today is specialty retailer of mattresses and related products and accessories Mattress Firm (MFRM), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Mattress Firm to report revenue of $274.39 million on earnings of 36 cents per share.

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The current short interest as a percentage of the float for Mattress Firm is very high at 19.2%. That means that out of the 11.40 million shares in the tradable float, 2.57 million shares are sold short by the bears. This is a high short interest and low float situation, so any bullish earnings news could easily spark a monster short-squeeze for shares of MFRM post-earnings.

From a technical perspective, MFRM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently pulled back from its 52-week high at $38.85 a share right to its 50-day moving average at $35.83 a share. If that level can hold after earnings, then shares of MFRM will set up to break out and trend into new 52-week-high territory.

If you're in the bull camp on MFRM, 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 $37.11 to $38.66 a share and then once it clears its 52-week high at $38.85 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 230,892 shares. If that breakout triggers, then MFRM will set up to enter new 52-week-high territory above $38.85, which is bullish technical price action. Some possible upside targets off that move are $42.50 to $45 a share, or even its all-time high at $48.18 a share.

I would simply avoid MFRM 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 $35.15 to $34.49 a share with high volume. If we get that move, then MFRM will set up to re-test or possibly take out its next major support levels at its 200-day moving average at $30.45 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.