Stock Quotes in this Article: ATU, FDS, FNSR, LZB, MU

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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FactSet Research Systems

My first earnings short-squeeze trade idea is provider of integrated financial information and analytical applications to the global investment community FactSet Research Systems (FDS), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect FactSet Research Systems to report revenue of $214.94 million on earnings of $1.15 per share.

The current short interest as a percentage of the float for FactSet Research Systems is pretty high at 10%. That means that out of the 40.73 million shares in the tradable float, 4.08 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of FDS could easily surge higher post-earnings as the bears rush to cover some of their short positions.

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From a technical perspective, FDS 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 and change, with shares moving higher from its low of $88.36 to its intraday high of $103.30 a share. During that uptrend, shares of FDS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FDS within range of triggering a big breakout trade post-earnings.

If you're bullish on FDS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some past overhead resistance levels at $103.76 to $107.74 a share and then above more resistance at $109.56 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 400,286 shares. If that breakout triggers, then FDS will set up to trend well north of $120 a share.

I would simply avoid FDS 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 $98 to $96.54 a share with high volume. If we get that move, then FDS will set up to re-test or possibly take out its next major support level at its 50-day of $95.54 a share to its 200-day at $93.57 a share. If those levels get taken out with volume, then FDS could trend below $90 a share post-earnings.

La-Z-Boy

Another potential earnings short-squeeze play is furniture manufacturer La-Z- Boy (LZB), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect La-Z-Boy to report revenue of $357.67 million on earnings of 28 cents per share.

During the last quarter, this company reported revenue of $349.1 million and GAAP reported sales were 10% higher than the prior-year quarter's $316.5 million. Also during the last quarter, non-GAAP EPS was 28 cents per share and GAAP EPS was 32 cents per share, which was 14% higher than the prior-year quarter's 28 cents per share.

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The current short interest as a percentage of the float for La-Z-Boy sits at 4.5%. That means that out of the 51.69 million shares in the tradable float, 2.34 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a sharp short-covering rally if La-Z-Boy delivers the earnings news the bulls are looking for.

From a technical perspective, LZB 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 and change, with shares moving between $17.50 on the downside and $19.65 on the upside. Shares of LZB recently bounced right off its 50-day moving average at $18.35 a share and are now quickly moving within range of triggering a near-term breakout trade.

If you're in the bull camp on LZB, 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 $19.69 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 270,508 shares. If that breakout triggers, then LZB will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $25 to $27 a share.

I would simply avoid LZB 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 $18.35 a share with high volume. If we get that move, then LZB will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $16.42 a share.

Actuant

Another earnings short-squeeze candidate is designer, manufacturer and distributor of a range of industrial products and systems Actuant (ATU), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Actuant to report revenue of $422.17 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for Actuant is pretty high at 12%. That means that out of the 67.76 million shares in the tradable float, 8.10 million shares are sold short by the bears. This is a decent short interest, so any bullish earnings news could easily send shares of ATU sharply higher post-earnings.

From a technical perspective, ATU 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 few weeks, with shares moving between $32.46 on the downside and just over $33.50 on the upside. A high-volume move above the upper-end of its recent range post-earnings could trigger a breakout trade for shares of ATU.

If you're bullish on ATU, then I would wait until after its report and look for long-biased trades if this stock manages to break out above $33.50 to its 52-week high at $34.61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 581,112 shares. If we get that breakout, then ATU will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $40 to $43 a share.

I would avoid ATU 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 $32.46 a share to its 50-day moving average at $32.12 a share with high volume. If we get that move, the ATU will set up to re-test or possibly take out its next major support levels at $30.50 a share to its 200-day moving average at $29.89 a share. Any high-volume move below its 200-day will then give ATU a chance to trend back below $29 a share.

Finisar

Another earnings short-squeeze prospect is communications and networking equipment maker player Finisar (FNSR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Finisar to report revenue of $242.95 million on earnings of 17 cents per share.

The current short interest as a percentage of the float for Finisar is very high at 13.6%. That means that out of the 91.99 million shares in the tradable float, 12.42 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.4%, or by about 1.17 million shares. If the shorts are caught pressing their bets into a bullish quarter, then shares of FNSR could rip significantly higher post-earnings.

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From a technical perspective, FNSR is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month, with shares moving higher from its low of $12.17 to its recent high of $14.91 a share. During that uptrend, shares of FNSR have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FNSR within range of triggering a breakout trade post-earnings.

If you're bullish on FNSR, 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 $14.91 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.24 million shares. If that breakout hits, then FNSR will set up to re-test or possibly take out its 52-week high at $17.14 a share. Any high-volume move above its 52-week high will then give FNSR a chance to trend back towards its next major overhead resistance levels at $20 to $23 a share.

I would avoid FNSR or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 50-day moving average at $14 and its 200-day moving average at $13.24 a share with high volume. If we get that move, then FNSR will set up to re-test or possibly take out its next major support levels $12.17 to $10.95 a share.

Micron Technology

My final earnings short-squeeze trade idea today is semiconductor player Micron Technology (MU), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue of $2.24 billion on earnings of 2 cents per share.

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Just this morning, Credit Suisse raised its price target on Micron to $20 a share from $14 a share. The firm said it expects the company to report stronger-than-expected third-quarter results and provide stronger than expected fourth quarter guidance when it reports earnings this week. The firm added that Micron is benefiting from higher prices.

The current short interest as a percentage of the float for Micron Technology is pretty high at 7.5%. That means that out of the 1.02 billion shares in the tradable float, 76.43 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10%, or by about 6.96 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of MU could experience a decent short-squeeze post-earnings.

From a technical perspective, MU 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 soaring higher from its low of $9.07 to its intraday high of $13.35 a share. During that uptrend, shares of MU have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on MU, then I would wait until after its report and look for long-biased trades as long as this stock is trending above some key near-term support at $13.19 a share with strong upside volume flows. Look for volume on that move that hits near or above its three-month average volume of 32.16 million shares. If we get that action, then MU will set up to enter new 52-week-high territory above $13.50 a share, which is bullish technical price action. Some possible upside targets off that move are $15 to $17 a share, or possibly even $20 a share.

I would avoid MU or look for short-biased trades if after earnings it fails to trigger that move, and then drops back below some key near-term support at $12.46 a share with high volume. If we get that move, then MU will set up to re-test or possibly take out its next major support levels at $11.50 to its 50-day moving average at $10.76 a share. Any high-volume move below $10.76 to $10.57 a share will then set up MU to re-test its next major support level at $9.07 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.