Stock Quotes in this Article: CIEN, CONN, NAV, TITN, BV

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.

Ciena

My first earnings short-squeeze trade idea is communications networking equipment provider Ciena (CIEN), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Ciena to report revenue of $532.99 million on earnings of 16 cents per share.

Just recently, FBR Capital said that Ciena is benefiting from an optical upgrade cycle and it expects the company to report stronger than expected results for its July quarter. That said, the firm expects Ciena's guidance for its October quarter to be in-line with expectations, and warns that its revenue recognition can be lumpy. The firm has an outperform rating on the stock.

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The current short interest as a percentage of the float Ciena is extremely high at 20.8%. That means that out of the 92.18 million shares in the tradable float, 20.77 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of CIEN could easily experience a large short-squeeze post-earnings.

From a technical perspective, CIEN is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been downtrending over the last month, with shares falling from its high of $23.63 to its low of $19.78 a share. During that move, shares of CIEN have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of CIEN have started to bounce off that $19.78 low and it's quickly moving within range of a near-term breakout trade.

If you're bullish on CIEN, 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 at $21.32 a share and then once it takes out more near-term resistance levels at $21.57 to $22 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.54 million shares. If that breakout hits, then CIEN will set up to re-test or possibly take out its 52-week high at $23.63 a share. If that level gets taken out with volume, then we could see CIEN tag $26 to $28 a share.

I would simply avoid CIEN 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 $19.78 to $19 a share with high volume. If we get that move, then CIEN will set up to re-test or possibly take out its next major support levels $17 to $16 a share.

Navistar International

Another potential earnings short-squeeze play is Navistar International (NAV), a manufacturer of international brand commercial and military trucks, which is set to release its numbers Wednesday before the market open. Wall Street analysts, on average, expect Navistar International to report revenue of $2.92 billion on a loss of $1.30 per share.

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The current short interest as a percentage of the float for Navistar International is pretty high at 12.4%. That means that out of the 53.80 million shares in the tradable float, 10.62 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 big short-squeeze for shares of NAV post-earnings.

From a technical perspective, NAV is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways inside of a consolidation pattern for the last month and change, with shares moving between $32.54 on the downside and $35.90 on the upside. Any high-volume move above the upper-end of its recent range could trigger a big breakout trade for shares of NAV post-earnings.

If you're in the bull camp on NAV, 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 $35.27 to $35.90 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.18 million shares. If that breakout triggers, then NAV will set up to re-test or possibly take out its 52-week high at $38.81 a share. Any high-volume move above that level will then give NAV a chance to trend north of $40 a share.

I would simply avoid NAV 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 $33.27 a share to its 50-day at $32.41 a share with high volume. If we get that move, then NAV will set up to re-test or possibly take out its next major support levels at its 200-day of $29.47 a share to $27 a share.

Conn's

One potential earnings short-squeeze candidate is Conn's (CONN), a specialty retailer of durable products, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Conn's to report revenue of $259.74 million on earnings of 60 cents per share.

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Just recently, Piper Jaffray said that Conn's is taking steps to increase its market share, faces little competition, and should report strong second quarter earnings. The firm said Conn's is raising its market share by extending credit at relativity low rates to customers with low credit ratings. The firm has a buy rating on the stock with a $76 per share price target.

The current short interest as a percentage of the float for Conn's is very high at 16.8%. That means that out of the 24.16 million shares in the tradable float, 4.23 million shares are sold short by the bears. This stock is a low float and high short interest situation. Any bullish earnings news could easily spark a monster short-squeeze for shares of CONN 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 six months, with shares soaring higher from its low of $31.02 to its recent high of $68.73 a share. During that uptrend, shares of CONN have been consistently making higher lows and higher highs, which is bullish technical price action.

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 to a new 52-week high above $69.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 459,330 shares. If that breakout triggers, then CONN will set up enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $75 to $80 a share.

I would avoid CONN or look for short-biased trades if after earnings it fails to trigger that move and then drops back below some near-term support at $65 a share with high volume. If we get that move, then CONN will set up to re-test or possibly take out its next major support levels at $62.38 to its 50-day at $60.53 a share. Any high-volume move below its 50-day moving average will then give CONN a chance to re-test its next major support levels at $57.50 to $55 a share.

Bazaarvoice

Another earnings short-squeeze prospect is Bazaarvoice (BV), a provider of social commerce software solutions, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Bazaarvoice to report revenue of $44.12 million on a loss of 8 cents per share.

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The current short interest as a percentage of the float for Bazaarvoice is very high at 14.4%. That means that out of the 41.18 million shares in the tradable float, 6.33 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11.6%, or by 656,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of BV could rip sharply higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, BV is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways inside of a consolidation pattern for the last month and change, with shares moving between $10.15 on the downside and $11.50 on the upside. Any high-volume move above the upper-end of its recent range post-earnings could trigger a major breakout trade for shares of BV.

If you're bullish on BV, 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 $11.35 to $11.50 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 661,797 shares. If that breakout triggers, then BV will set up to re-test or possibly take out its next major overhead resistance levels at $13 to $14 a share.

I would simply avoid BV or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $10.34 a share and then below some key near-term support at $10.15 a share with high volume. If we get that move, then BV will set up to re-test or possibly take out its next major support levels at $9 to its 200-day at $8.57 a share.

Titan Machinery

My final earnings short-squeeze play is owner and operator of a network of agricultural and construction equipment stores Titan Machinery (TITN), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Titan Machinery to report revenue of $463.11 million on earnings of 20 cents per share.

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The current short interest as a percentage of the float for Titan Machinery is extremely high at 36.1%. That means that out of the 16.94 million shares in the tradable float, 6.21 million shares are sold short by the bears. This stock sports a monster short interest and a very low tradable float. Any bullish earnings news could easily set off a large short-squeeze for shares of TITN post-earnings.

From a technical perspective, TITN 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 five months, with shares dropping from its high of $24 to its recent low of $16.87 a share. During that downtrend, shares of TITN have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of TITN have started to bounce modestly off that $16.87 low and it's starting to trend within range of triggering a near-term breakout trade.

If you're in the bull camp on TITN, 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 $18.60 a share and then back above its 50-day moving average at $18.99 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 360,003 shares. If that breakout triggers, then TITN will set up to re-test or possibly take out its next major resistance levels at $21 to its 200-day moving average at $23.43 a share.

I would avoid TITN 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 $17.31 a share to its 52-week low of $16.87 a share with high volume. If we get that move, then TITN will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible upside targets if TITN makes a new 52-week low are $15 to $14 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.