Stock Quotes in this Article: MTB, OZRK, PBCT, SLM, SWKS

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.

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.

Bank of the Ozarks

My first earnings short-squeeze trade play is southeast regional banking player Bank of the Ozarks (OZRK), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Bank of the Ozarks to report revenue of $72.87 million on earnings of 65 cents per share.

The current short interest as a percentage of the float for Bank of the Ozarks is notable at 7.9%. That means that out of the 32.26 million shares in the tradable float, 2.57 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 really for shares of OZRK post-earnings.

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From a technical perspective, OZRK 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 and change, with shares moving higher from its low of $44.85 to its recent high of $58.09 a share. During that move, shares of OZRK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of OZRK within range of triggering a big breakout trade post-earnings.

If you're bullish on OZRK, 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 $57.80 to its 52-week high at $58.09 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 157,775 shares. If that breakout hits, then OZRK will set up to enter new 52-week-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 OZRK 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 $54.24 a share to some more near-term support at $53.54 a share high volume. If we get that move, then OZRK will set up to re-test or possibly take out its next major support levels at $49 to its 200-day moving average of $47.37 a share.

Skyworks Solutions

Another potential earnings short-squeeze trade idea is analog and mixed signal semiconductor player Skyworks Solutions (SWKS), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Skyworks Solutions to report revenue $500.01 million on earnings of 66 cents per share.

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Just recently, B. Riley upgraded shares of Skyworks to buy from neutral citing relative valuation and views it as the best China/EC smartphone play. The firm also upgraded its price targets on SWKS to $35 per share from $28.

The current short interest as a percentage of the float for Skyworks Solutions stands at 3.2%. That means that out of the 187 million shares in the tradable float, 5.91 million shares are sold short by the bears. This is far from a large short interest, but it's more than enough to spark a solid short-covering rally on shares of SWKS post-earnings if the company can deliver the earnings news the bulls are looking for.

From a technical perspective, SWKS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last two months and change, with shares moving higher from its low of $23.27 to its recent high of $29.21 a share. During that uptrend, shares of SWKS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SWKS within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SWKS, 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 $29.21 a share (or its intraday high on Thursday if higher) with high volume. Look for volume on that move that hits near or above its three-month average action of 2.67 million shares. If that breakout hits, then SWKS 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 $40 a share.

I would simply avoid SWKS 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 $27.20 to its 50-day moving average of $27.11 a share with high volume. If we get that move, then SWKS will set up to re-test or possibly take out its next major support levels at $25 to its 200-day moving average of $24.20 a share.

M&T Bank

Another potential earnings short-squeeze candidate is northeast regional banking player M&T Bank (MTB) which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect M&T Bank to report revenue of $1.10 billion on earnings of $1.92 per share.

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The current short interest as a percentage of the float for M&T Bank is very high at 12.5%. That means that out of the 118.42 million shares in the tradable float, around 11.45 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.4%, or by about 1.27 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of MTB could easily soar sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, MTB is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the last two months and change, with shares moving higher from its low of $109.72 to its recent high of $117.29 a share. During that uptrend, shares of MTB have been making mostly higher lows and higher highs, which is bullish technical price action. That move has how pushed shares of MTB within range of triggering a big breakout trade.

If you're bullish on MTB, 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 $117.29 to $117.97 a share and then once it clears its 52-week high at $119.54 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 954,932 shares. If that breakout hits, then MTB will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $135 to $145 a share.

I would avoid MTB 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 $113 to $111.57 a share with high volume. If we get that move, then MTB will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $110.01 a share to $108.57 a share. Any high-volume move below those levels will then give MTB a chance to tag $104 to $100 a share.

People's United Financial

Another earnings short-squeeze prospect is savings and loan player People's United Financial (PBCT), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect People's United Financial to report revenue of $310.90 million on earnings of 20 cents per share.

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The current short interest as a percentage of the float for People's United Financial is pretty high at 8.2%. That means that out of the 304.57 million shares in the tradable float, 25.61 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of PBCT could easily rip sharply higher post-earnings as the bears jump to cover some of their bets.

From a technical perspective, PBCT 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 and change, with shares moving higher from its low of $13.93 to its recent high of $15.70 a share. During that uptrend, shares of PBCT have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of PBCT within range of triggering a big breakout trade post-earnings.

If you're bullish on PBCT, 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 of $15.70 a share (or Thursday's intraday high if higher) with high volume. Look for volume on that move that hits near or above its three-month average action of 3.01 million shares. If that breakout hits, then PBCT will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $22 to $25 a share.

I would simply avoid PBCT 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 $15 to its 50-day moving average of $14.85 a share with high volume. If we get that move, then PBCT will set up to re-test or possibly take out its next major support levels at $14.51 to its 200-day moving average of $14.24 a share. Any high-volume move below those levels will then give PBCT a chance to tag $14 to $13 a share.

SLM

My final earnings short-squeeze play student loan player SLM (SLM), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect SLM to report revenue of $673.67 million on earnings of 73 cents per share.

The current short interest as a percentage of the float for SLM stands at 3.2%. That means that out of the 432.45 million shares in the tradable float, 13.80 million shares are sold short by the bears. This is by no means a large short interest, but it's more than enough to spark a decent short-covering rally post-earnings if SLM can deliver the earnings news the bulls are looking for.

From a technical perspective, SLM 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 $23.56 to its intraday high of $27.05 a share. During that uptrend, shares of SLM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SLM within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SLM, then I would wait until after its report and look for long-biased trades if this stock manages to break out above Tuesday's intraday high and its new 52-week high of $27.05 a share (or above Thursday's intraday high if higher) with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.73 million shares. If that breakout hits, then SLM 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 $40 a share.

I would avoid SLM 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 a share with high volume. If we get that move, then SLM will set up to re-test or possibly take out its next major support levels at $25.18 to $24.47 a share. Any high-volume move below those levels will then give SLM a chance to tag its 200-day moving average of $23.90 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.