Stock Quotes in this Article: CASY, MW, OCLS, OXM, RH

 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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Men's Wearhouse

My first earnings short-squeeze play is specialty retailer of men's suits and provider of tuxedo rental products Men's Wearhouse (MW), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Men's Wearhouse to report revenue of $607.74 million on earnings of 55 cents per share.

Stifel Nicolaus analyst Richard Jaffe recently said, "The second quarter is almost half of the profits in a year because tuxedos are so profitable." Jaffe said the company will have good visibility into second quarter tuxedo sales since customers reserve ahead for June weddings and May proms. Prom spending is reportedly up this year.

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The current short interest as a percentage of the float for Men's Wearhouse is notable at 5.5%. That means that out of the 48.14 million shares in the tradable float, 2.61 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.8%, or by about 94,000 shares. If the short-sellers are caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings.

From a technical perspective, MW 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 month and change, with shares moving higher from its low of $31.57 to its recent high of $36.65 a share. During that uptrend, shares of MW have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MW within range of triggering a near-term breakout trade post-earnings.

If you're bullish on MW, 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 $36.65 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 663,822 shares. If that breakout hits, then MW will set up to re-test or possibly take out its 52-week high at $38.59 a share. Any high-volume move above that level will then give MW a chance to trend well north of $40 a share.

I would simply avoid MW 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 $34.78 a share to its 50-day at $34.23 a share with high volume. If we get that move, then MW will set up to re-test or possibly take out its next major support level at its 200-day of $32.45 a share to $31.57 a share.

Restoration Hardware

Another potential earnings short-squeeze trade is home furnishings merchant Restoration Hardware (RH), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Restoration Hardware to report revenue of $299.24 million on earnings of 4 cents per share.

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Just this morning, Jefferies initiated coverage on Restoration Hardware with a buy rating and a $68 a share price target. The current short interest as a percentage of the float for Restoration Hardware is very high at 15%. That means that out of the 23.37 million shares in the tradable float, 2 million shares are sold short by the bears. This is a large short interest on a stock with low tradable float. Any bullish earnings news could easily spark a big short-squeeze for shares of RH post-earnings.

From a technical perspective, RH is currently trending above its 50-day moving average, which is bullish. This stock has been trending sideways for the last month, with shares moving between $52.39 on the downside and $57.77 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 RH.

If you're in the bull camp on RH, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its all-time high at $57.77 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 251,038 shares. If that breakout triggers, then RH will set up to enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $65 to $70 a share.

I would simply avoid RH 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 $54 to $52.39 a share with high volume. If we get that move, then RH will set up to re-test or possibly take out its next major support levels at $50 to $48 a share.

Casey's General Stores

One potential earnings short-squeeze candidate is convenience stores operator Casey's General Stores (CASY), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Casey's General Stores to report revenue of $1.83 billion on earnings of 62 cents per share.

Just this morning, Benchmark initiated coverage on Casey's General Stores with a buy rating and $73 a share price target, due to both earnings growth potential and operating margin expansion. The firm said Casey's could continue to increase its store base while boosting comparable sales and profitably, which could lead to years of revenue and earnings growth.

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The current short interest as a percentage of the float for Casey's General Stores is notable at 6.8%. That means that out of the 38.05 million shares in the tradable float, 2.58 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then this stock could rip sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, CASY 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 two months, with shares moving higher from its low of $52.69 to its recent high of $63.72 a share. During that uptrend, shares of CASY have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CASY within range of triggering a near-term breakout trade post-earnings.

If you're bullish on CASY, 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 $63.72 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 259,973 shares. If we get that breakout, then CASY will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $75 a share.

I would avoid CASY 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 $61 to $59.90 a share with high volume. If we get that move, the CASY will set up to re-test or possibly take out its next major support levels at its 50-day at $58.72 a share to $57.33 to $56.79 a share.

Oxford Industries

Another earnings short-squeeze prospect is international manufacturer and wholesale marketer of branded and private label apparel player Oxford Industries (OXM), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Oxford Industries to report revenue of $236.87 million on earnings of 78 cents per share.

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The current short interest as a percentage of the float for Oxford Industries is pretty high at 8%. That means that out of the 14.49 million shares in the tradable float, 1.16 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 sharp short-covering rally for shares of OXM post-earnings.

From a technical perspective, OXM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been downtrending during the last few weeks, with shares dropping from its 52-week high at $67 to its intraday low of $62.43 a share. During that move, shares of OXM have been mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of OXM have so far held its 50-day moving average at $60.59 a share off this pullback.

If you're bullish on OXM, 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 $64.57 to $67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 114,172 shares. If that breakout hits, then OXM will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $75 a share.

I would avoid OXM 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 $62.73 to its 50-day moving average at $60.59 a share with high volume. If we get that move, then OXM will set up to re-test or possibly take out its next major support levels at $58 to $56 a share.

Oculus Innovative Sciences

My final earnings short-squeeze trade idea is Oculus Innovative Sciences (OCLS), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Oculus Innovative Sciences to report revenue of $3.87 million on a loss of 13 cents per share.

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The current short interest as a percentage of the float for Oculus Innovative Sciences stands at 5.5%. That means that out of the 4.81 million shares in the tradable float, 319,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 30.6%, or by about 74,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of OCLS could spike sharply higher post-earnings.

From a technical perspective, OCLS 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 month and change, with shares dropping sharply from its high of $6.43 a share to its recent low of $3.11 a share. During that downtrend, shares of OCLS have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on OCLS, 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 $3.58 to $3.80 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 136,550 shares. If that breakout triggers, then OCLS will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average at $4.26 a share to its 200-day moving average at $4.85 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.