Stock Quotes in this Article: APOL, AZZ, GBX, MU, STZ

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.

Apollo Education Group

My first earnings short-squeeze play is private education provider Apollo Education Group (APOL), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Apollo Education Group to report revenue of $860.58 million on earnings of 90 cents per share.

The current short interest as a percentage of the float Apollo Education Group is pretty high at 12.2%. That means that out of the 100.24 million shares in the tradable float, 12.08 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of APOL could easily explode higher post-earnings as the bears rush to cover some of their short positions.

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From a technical perspective, APOL 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 month, with shares moving higher from its low of $24.18 to its recent high of $27.45 a share. During that move, shares of APOL have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of APOL within range of triggering a big breakout trade post-earnings.

If you're bullish on APOL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $27.45 to its 52-week high at $29.07 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.47 million shares. If that breakout hits, then APOL will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $35 to $38 a share.

I would simply avoid APOL 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 $26.27 a share with high volume. If we get that move, then APOL will set up to re-test or possibly take out its next major support levels at $24 to its 200-day moving average of $21.07 a share.

Micron Technology

Another potential earnings short-squeeze trade idea is semiconductor player Micron Technology (MU), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue $3.71 billion on earnings of 44 cents per share.

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The current short interest as a percentage of the float for Micron Technology is pretty high at 12.6%. That means that out of the 980.15 million shares in the tradable float, 131.70 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of MU could easily rip sharply higher post-earnings as the bears jump to cover some of their short positions.

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 six months, with shares moving higher from its low of $12.31 to its recent high of $23.67 a share. During that uptrend, shares of MU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MU within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on MU, 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 $22.58 a share to its 52-week high of $23.67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 43.39 million shares. If that breakout hits, then MU will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $28 to $30 a share.

I would simply avoid MU 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 $20.22 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 $18.50 to $16 a share.

AZZ

One potential earnings short-squeeze candidate is electrical equipment and components manufacturer AZZ (AZZ) which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect AZZ to report revenue of $218.63 million on earnings of 74 cents per share.

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The current short interest as a percentage of the float for AZZ is notable at 4.6%. That means that out of the 24.48 million shares in the tradable float, 1.20 million shares are sold short by the bears. This stock has a decent short interest combined with a very low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally for shares of AZZ post-earnings.

From a technical perspective, AZZ is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last six months, with shares moving higher from its low of $34.49 to its recent high of $49.64 a share. During that move, shares of AZZ have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AZZ within range of triggering a big breakout trade post-earnings.

If you're bullish on AZZ, 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 $49 to its 52-week high at $49.64 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 127,617 shares. If that breakout hits, then AZZ will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $60 to $65 a share.

I would avoid AZZ 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 at $46.62 a share to more near-term support at $45.45 a share with high volume. If we get that move, then AZZ will set up to re-test or possibly take out its next major support levels at $43.51 to its 200-day moving average of $42.32 a share. Any high-volume move below those levels will then give AZZ a chance to tag $40 to $39 a share.

Constellation Brands

Another earnings short-squeeze prospect is Constellation Brands (STZ), a imported beer and wine marketer in the U.S., which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Constellation Brands to report revenue of $1.38 billion on earnings of 91 cents per share.

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The current short interest as a percentage of the float for Constellation Brands stands at 3.3%. That means that out of the 157.46 million shares in the tradable float, 4.24 million shares are sold short by the bears. This is far from a huge short interest, but it's more than enough to spark a decent short-covering rally if Constellation Brands can deliver the earnings news the bulls are looking for.

From a technical perspective, STZ 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 moving higher from its low of $49.32 to its recent high of $71.62 a share. During that uptrend, shares of STZ have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of STZ within range of triggering a big breakout trade post-earnings.

If you're bullish on STZ, 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 $70.57 a share to its 52-week high at $71.62 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.32 million shares. If that breakout hits, then STZ will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $80 to $85 a share.

I would simply avoid STZ 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 $68.66 a share to more near-term support at $68.17 a share with high volume. If we get that move, then STZ will set up to re-test or possibly take out its next major support levels at $64 to $60 a share. Any high-volume move below those levels will then give STZ a chance to tag its 200-day moving average of $57.16 a share.

Greenbrier

My final earnings short-squeeze play is Greenbrier (GBX), a designer, manufacturer and marketer of railroad freight car equipment, which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Greenbrier Companies to report revenue of $481.41 million on earnings of 53 cents per share.

The current short interest as a percentage of the float for Greenbrier Companies is very high at 14.1%. That means that out of the 22.92 million shares in the tradable float, 3.53 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.8%, or by 63,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of GBX could easily rip sharply higher post-earnings as the bears jump to cover some of their short positions.

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 over the last few weeks, with shares moving higher from its low of $28.74 to its recent high of $33.57 a share. During that uptrend, shares of GBX have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GBX within range of triggering a big 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 levels at $33 to its 52-week high at $33.57 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 347,016 shares. If that breakout hits, then GBX 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 $45 a share.

I would avoid GBX 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 $30.93 a share with high volume. If we get that move, then GBX will set up to re-test or possibly take out its next major support levels at $28.74 to its 200-day moving average of $25.31 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.