Stock Quotes in this Article: GBX, KMX, MU, PERY, SCHN

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.

Micron Technology

My first earnings short-squeeze play global semiconductor devices maker and marketer Micron Technology (MU), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue of $3.98 billion on earnings of 75 cents per share.

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Recently, Stifel Nicolaus's Kevin Cassidy reiterated his buy rating on shares of Micron Technology and his $31-a-share price target.

The current short interest as a percentage of the float for Micron Technology is very high at 12.6%. That means that out of the 989.44 million shares in the tradable float, 124.68 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9%, or by about 10.30 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of MU could easily soar sharply higher post-earnings as the shorts jump to cover some of their trades.

From a technical perspective, MU is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last two months, with shares moving lower from its high of $25.68 to its recent low of $21.70 a share. During that move, shares of MU have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of MU have now started to bounce off that $21.70 low and it's starting to move within range of triggering a near-term breakout trade.

If you're bullish 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 $25.15 a share to its 52-week high at $25.68 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 31.99 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 $30 to $35 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 some key near-term support levels at $21.70 to $20.64 a share 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 its 200-day moving average of $18.92 a share to around $16 a share.

Greenbrier

Another potential earnings short-squeeze trade idea is railroad freight car equipment player Greenbrier (GBX), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Greenbrier Companies to report revenue $508.69 million on earnings of 60 cents per share.

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The current short interest as a percentage of the float for Greenbrier Companies is extremely high at 16.2%. That means that out of the 22.79 million shares in the tradable float, 3.71 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.1%, or by about 145,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of GBX could easily spike sharply higher post-earnings as the shorts rush to cover some of their 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 trending sideways over the last month, with shares moving between $43.05 on the downside and $47.33 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 GBX.

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 $47.20 a share to its 52-week high at $47.33 a share (or Wednesday's intraday high if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 479,269 shares. If that breakout materializes, 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 $55 to $65 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 levels at $43.05 a share to its 50-day moving average of $40.92 a share with high volume. If we get that action, then GBX will set up to re-test or possibly take out its next major support levels at $36 to $34 a share, or even $32 a share.

CarMax

Another potential earnings short-squeeze candidate is used vehicles retailer CarMax (KMX), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect CarMax to report revenue of $3.18 billion on earnings of 53 cents per share.

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The current short interest as a percentage of the float for CarMax is notable at 4.1%. That means that out of the 221.86 million shares in the tradable float, 9.16 million 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 squeeze post-earnings if KMX can deliver the news the bulls are looking for.

From a technical perspective, KMX is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has just started to trend back above its 50-day moving average of $47 a share, after touching its recent low of $44.90 a share. That spike is starting to push shares of KMX within range of triggering a near-term breakout trade post-earnings.

If you're bullish on KMX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $48.12 a share and then once it clears some near-term overhead resistance levels at $48.67 to $49.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.87 million shares. If that breakout starts after earnings, then KMX will set up to re-fill its previous gap-down-day zone from December that started at $53 a share. Any high-volume move above $53 would then give KMX a chance to tag $60 a share.

I would avoid KMX 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 $44.90 to $43.90 a share with high volume. If we get that move, then KMX will set up to re-test or possibly take out its next major support levels at its 52-week low of $40.34 a share to $37.50 a share.

Schnitzer Steel Industries

Another earnings short-squeeze prospect is recycled ferrous metal products manufacturer and export player Schnitzer Steel Industries (SCHN), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Schnitzer Steel Industries to report revenue of $665.52 million on earnings of 10 cents per share.

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The current short interest as a percentage of the float for Schnitzer Steel Industries is very high at 12.6%. That means that out of the 25.20 million shares in the tradable float, 3.19 million shares are sold short by the bears. This is a large short interest on a stock with a very low tradable float. Any bullish earnings news could easily send shares of SCHN ripping higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, SCHN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom chart pattern at $24.58 to $24.71 a share. Following that bottom, shares of SCHN have started to uptrend and move back above both of its 50-day and 200-day moving averages. That move has now pushed shares of SCHN within range of triggering a near-term breakout trade post-earnings.

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 levels at $29.56 to $29.97 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 298,570 shares. If that breakout hits, then SCHN will set up to re-test or possibly take out its next major overhead resistance levels at its 52-week high of $33.32 a share. Any high-volume move above that level will then give SCHN a chance to tag $40 a share.

I would simply avoid SCHN or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 200-day at $27.34 a share to its 50-day at $26.63 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 levels at $24.50 to its 52-week low of $23.07 a share, or even $21.75 a share.

Perry Ellis International

My final earnings short-squeeze play is apparel products player Perry Ellis International (PERY), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Perry Ellis International to report revenue of $216.06 million on earnings of 3 cents per share.

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The current short interest as a percentage of the float for Perry Ellis International sits at 5%. That means that out of the 11.50 million shares in the tradable float, 576,000 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 46,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of PERY could easily surge sharply higher post-earnings as the shorts jump to cover some of their trades.

From a technical perspective, PERY is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last two months, with shares moving lower from its high of $17.44 to its recent low of $12.37 a share. During that move, shares of PERY have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of PERY have started to bounce off that $12.37 low and it's now starting to move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on PERY, 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 $14.49 to $14.63 a share and then once it takes out at its 50-day moving average of $14.66 with high volume. Look for volume on that move that hits near or above its three-month average volume of 109,151 shares. If that breakout triggers post-earnings, then PERY will set up to re-fill some of its previous gap-down-day zone that started at $15.85 a share. Any high-volume move above $15.85 will then give PERY a chance to tag its next major overhead resistance level at $17.44 a share.

I would avoid PERY 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 $13.50 to $13.43 a share with high volume. If we get that move, then PERY will set up to re-test or possibly take out its 52-week low of $12.37 a share. Any high-volume move below $12.37 to $12.22 a share will then give PERY a chance to tag $10 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.