Stock Quotes in this Article: GIII, OVTI, THO, UNFI, ASNA

DELAFIELD, 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.

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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.

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.

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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.

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.

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With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

Ascena Retail Group

My first earnings short-squeeze trade idea is specialty retailer of apparel for women and teen girls Ascena Retail Group (ASNA21), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Ascena Retail Group to report revenue of $1.18 billion on earnings of 32 cents per share.

The current short interest as a percentage of the float Ascena Retail Group is pretty high at 6.3%. That means that out of the 119.46 million shares in the tradable float, 8.93 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of ASNA could rip sharply higher post-earnings as the bears rush to cover some of their short positions.

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From a technical perspective, ASNA is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit for the last two months, with shares moving higher from its low of $19.29 to its recent high of $21.70 a share. During that uptrend, shares of ASNA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ASNA within range of triggering a near-term breakout trade.

If you're bullish on ASNA, 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 $21.70 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.74 million shares. If that breakout hits, then ASNA 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 $30 a share.

I would simply avoid ASNA 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 of $20.19 a share with high volume. If we get that move, then ASNA will set up to re-test or possibly take out its next major support levels at $19.30 to its 200-day moving average of $18.65 a share.

Thor Industries

Another potential earnings short-squeeze play is recreation vehicle maker Thor Industries (THO), which is set to release its numbers on Monday after the market close. Wall Street analysts, on average, expect Thor Industries to report revenue $844.74 million on earnings of 70 cents per share.

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The current short interest as a percentage of the float for Thor Industries is notable at 6.8%. That means that out of the 50.62 million shares in the tradable float, 2.74 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 14%, or by about 382,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of THO could rip sharply higher post-earnings as the bears jump to cover some of their short bets.

From a technical perspective, THO 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 uptrending modestly over the last month, with shares moving higher from its low of $51 to its intraday high of $54.90 a share. During that move, shares of THO have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of THO within range of triggering a near-term breakout trade.

If you're in the bull camp on THO, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $55.27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 393,081 shares. If that breakout hits, then THO will set up to re-test or possibly take out its next major overhead resistance levels at $58.91 to its 52-week high at $59.94 a share. Any high-volume move above those levels will then give THO a chance to tag $65 a share.

I would simply avoid THO 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 $52 to $51 a share with high volume. If we get that move, then THO will set up to re-test or possibly take out its 200-day moving average of $46.67 a share.

United Natural Foods

One potential earnings short-squeeze candidate is natural, organic and specialty foods distributor United Natural Foods (UNFI) which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect United Natural Foods to report revenue of $1.61 billion on earnings of 54 cents per share.

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The current short interest as a percentage of the float for United Natural Foods stands at 4.1%. That means that out of the 47.28 million shares in the tradable float, 2.05 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally post-earnings as the bears rush to cover some of their bets.

From a technical perspective, UNFI 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 trending sideways for the last month, with shares moving between $67.48 on the downside and $72.56 on the upside. Any high-volume move above the upper-end of its recent range post-earnings could trigger a big breakout trade for shares of UNFI.

If you're bullish on UNFI, 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 $72.56 to its 52-week high at $75.85 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 310,144 shares. If that breakout hits, then UNFI will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $85 to $90 a share.

I would avoid UNFI 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 $67.48 to $65 a share with high volume. If we get that move, then UNFI will set up to re-test or possibly take out its next major support level at its 200-day moving average of $58.47 a share.

G-III Apparel Group

Another earnings short-squeeze prospect is women's apparel player G-III Apparel Group (GIII), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect G-III Apparel Group to report revenue of $629.28 million on earnings of $2.61 per share.

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The current short interest as a percentage of the float for G-III Apparel Group sits at 6.6%. That means that out of the 15.18 million shares in the tradable float, 1.22 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. If the bulls get the earnings news they're looking for, then shares of GIII could explode higher post-earnings as the bears jump to cover some of their short positions.

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 three months, with shares soaring higher from its low of $44.80 to its recent high of $61 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 big breakout trade post-earnings.

If you're bullish 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 $61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 121,852 shares. If that breakout hits, then GII 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 simply avoid GIII 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 its 50-day moving average of $56.08 a share to more near-term support at $55.79 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 $50.66 to its 200-day moving average of $47.61 a share.

OmniVision Technologies

My final earnings short-squeeze play is semiconductor image-sensor devices maker OmniVision Technologies (OVTI), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect OmniVision Technologies to report revenue of $392.26 million on earnings of 43 cents per share.

The current short interest as a percentage of the float for OmniVision Technologies is pretty high at 11.1%. That means that out of the 54.97 million shares in the tradable float, about 5.87 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4%, or by about 236,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of OVTI could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, OVTI 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, with shares moving higher from its low of $13.55 to its recent high of $16.51 a share. During that uptrend, shares of OVTI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of OVTI within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on OVTI, 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 $16.51 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.35 million shares. If that breakout hits, then OVTI will set up to re-test or possibly take out its next major overhead resistance levels at $18.79 to $20.48 a share. Any high-volume move above those levels will then give OVTI a chance to tag $25 a share.

I would avoid OVTI or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 200-day moving average at $15.43 to its 50-day moving average at $14.66 a share with high volume. If we get that move, then OVTI will set up to re-test or possibly take out its next major support levels at $13.55 to its 52-week low at $12.06 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 Delafield, Wis.


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

Roberto Pedone, based out of Delafield, 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.