Stock Quotes in this Article: CONN, GBX, ISCA, MIND, SCHN

WINDERMERE, Fla. (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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Conn’s

My first earnings short-squeeze trade today is Conn’s (CONN), a specialty retailer of durable consumer products, which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Conn’s to report revenue of $246.91 million on earnings of 56 cents per share.

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During the last quarter, Conn’s reported revenue of $206.4 million, and GAAP reported sales were 11% higher than the prior-year quarter’s $186.6 million. Also during the last quarter, gross margin came in at 45.9% or 930 basis points better than the prior-year-quarter.

The current short interest as a percentage of the float for Conn’s is extremely high at 31.7%. That means that out of the 26.36 million shares in the tradable float, 7.03 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.7%, or by about 316,000 shares. If the short-sellers are caught pressing their bets into a bullish quarter, then we could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, CONN 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 three months, with shares soaring higher from its low of $27.44 to its recent high of $37.91 a share. During that uptrend, shares of CONN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CONN within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on CONN, 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 to $37.91 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 474,957 shares. If that breakout hits, then CONN 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 CONN 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 $34.76 a share with high volume. If we get that move, then CONN will set up to re-test or possibly take out its 50-day moving average of $32.21 a share.

Mitcham Industries

Another potential earnings short-squeeze play is oil well services and equipment player Mitcham Industries (MIND), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Mitcham Industries to report revenue of $29.58 million on earnings of 40 cents per share.

This company has topped Wall Street analysts’ estimates two times during the last four quarters. During the last quarter, Mitcham Industries reported revenue of $18.6 million and GAAP reported sales were 34% lower than the prior-year quarter’s $28 million.

The current short interest as a percentage of the float for Mitcham Industries is notable at 4.5%. That means that out of the 11.93 million shares in the tradable float, 539,000 shares are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spark a decent short covering rally if MIND gives the bulls the earnings news they’re looking for.

From a technical perspective, MIND 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 four months, with shares soaring higher from its low of $11.51 to its recent high of $18 a share. During that uptrend, shares of MIND have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MIND within range of triggering a near-term breakout trade post-earnings.

If you’re in the bull camp on MIND, 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 $17.15 to $18 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 64,069 shares. If that breakout triggers, then MIND will set up to re-test or possibly take out its next major overhead resistance levels at $18.79 to $19.83 a share. Any high-volume move above those levels will then put $21 to $22 into range for shares of MIND.

I would simply avoid MIND or look for short-biased trades if after earnings it fails to trigger that move, and then drops back below both its 200-day at $15.50 a share and its 50-day at $15.78 a share with high volume. If we get that move, then MIND will set up to re-test or possibly take out its next major support levels at $14.66 to $13.83 a share.

International Speedway

Another potential earnings short-squeeze candidate is International Speedway (ISCA), an owner of motorsports entertainment facilities and promoter of motorsports-themed entertainment activities, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect International Speedway to report revenue of $126.50 million on earnings of 36 cents per share.

The current short interest as a percentage of the float for International Speedway stands at 5.5%. That means that out of the 26.48 million shares in the tradable float, 1.42 million shares are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spark a short covering really if ISCA can deliver the earnings numbers the bulls are looking for.

From a technical perspective, ISCA 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 five months, with shares soaring higher from its low of $24.22 to its intraday high of $33.48 a share. During that uptrend, shares of ISCA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ISCA into new 52-week-high territory at $33.48 a share.

If you’re bullish on ISCA, then I would wait until after its report and look for long-biased trades if this stock manages to break out to a new 52-week high with heavy upside volume. Look for volume on that move that registers near or above its three-month average action of 153,962 shares. If that breakout triggers, then ISCA could possibly trend north of $40 a share.

I would avoid ISCA or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $32 to $31 a share with high volume. If we get that move, then ISCA will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $30.27 to $29.81 a share.

Schnitzer Steel Industries

Another earnings short-squeeze prospect is Schnitzer Steel Industries (SCHN), a recycler of ferrous and nonferrous scrap metal, which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Schnitzer Steel Industries to report revenue of $683.44 million on earnings of 24 cents per share.

If you’re looking for a heavily-shorted stock that’s entered oversold territory ahead of its earnings report this week, then make sure to check out shares of Schnitzer Steel Industries. This stock currently sports a relative strength index reading of 27.5, and shares of SHCN have dropped 14.7% so far in 2013.

The current short interest as a percentage of the float for Schnitzer Steel Industries is rather high at 9.9%. That means that out of the 25.61 million shares in the tradable float, 2.40 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.8%, or by about 193,000 shares. If the bears are caught pressing their bets into a solid quarter, then we could see shares of SCHN spike notably higher post-earnings.

From a technical perspective, SCHN 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 dropping from its high of $32.79 to its intraday low of $25.65 a share. During that downtrend, shares of SCHN have been mostly making lower highs and lower lows, which is bearish technical price action.

If you’re bullish on SCHN, 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 $27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 342,734 shares. If that breakout triggers, then SCHN will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $28.52 or its 50-day moving average at $28.88 a share. Any high-volume move above those levels will then put $30 to $31 into range for shares of SHCN.

I would avoid SCHN 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 $25.83 to $25.10 a share with high volume. If we get that move, then SCHN will set up to re-test or possibly take out its next major support level at $22.35 a share.

Greenbrier Companies

My final earnings short-squeeze trade idea today is designer, manufacturer and marketer of railroad freight car equipment Greenbrier Companies (GBX), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Greenbrier Companies to report revenue of $442.91 million on earnings of 37 cents per share.

The current short interest as a percentage of the float for Greenbrier Companies is very high at 15.5%. That means that out of the 20.68 million shares in the tradable float, 3.65 million shares are sold short by the bears. This stock sports a relatively low float and a large number of shorts. Any bullish earnings news could easily set off a large short-squeeze for GBX post-earnings.

From a technical perspective, GBX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending modestly over the last month, with shares moving higher from its low of $19.39 to its recent high of $22.98 a share. During that uptrend, shares of GBX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GBX within range of triggering a near-term breakout trade post-earnings.

If you’re in the bull camp on GBX, 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 $22.98 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 561,362 shares. If that breakout triggers, then GBX will set up to re-test or possibly take out its next major overhead resistance levels at $26.28 to $26.66 a share.

I would simply avoid GBX or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $21.87 a share with high volume. If we get that move, then GBX will set up to re-test or possibly take out its 50-day moving average at $20.71 a share. A high-volume move below its 50-day will then put $19.39 to $18 into range for shares of GBX.

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

-- Written by Roberto Pedone in Winderemere, Fla.

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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 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.