Stock Quotes in this Article: APOG, CBRL, CLC, FDS, TWGP

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.

FactSet Research Systems

My first earnings short-squeeze trade idea is integrated financial information and analytical applications provider FactSet Research Systems (FDS), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect FactSet Research Systems to report revenue of $218.93 million on earnings of $1.21 per share.

The current short interest as a percentage of the float FactSet Research Systems is pretty high at 15.7%. That means that out of the 40.10 million shares in the tradable float, 6.31 million shares are sold short by the bears. This is a high short interest on a stock with a relatively low float. Any bullish earnings news could easily spark a sharp short covering rally for shares of FDS post-earnings.

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From a technical perspective, FDS 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 few weeks, with shares ripping higher from its low of $101.07 to its intraday high of $112.89 a share. During that move, shares of FDS have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on FDS, 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 $112.90 a share (or its intraday high on Monday if greater) with high volume. Look for volume on that move that registers near or above its three-month average action of 397,438 shares. If that breakout hits, then FDS will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $120 to $125 a share.

I would simply avoid FDS 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 level $110 a share with high volume. If we get that move, then FDS will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $107.72 a share to $101.07 a share.

Apogee Enterprises

Another potential earnings short-squeeze play is Apogee Enterprises (APOG), a designer and developer of value-added glass products, services and systems, which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Apogee Enterprises to report revenue of $187 million on earnings of 23 cents per share.

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The current short interest as a percentage of the float for Apogee Enterprises is pretty high at 4.1%. That means that out of the 26.40 million shares in the tradable float, 1.16 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.3%, or by 107,864 shares. If the bears are caught pressing their bets into a strong quarter, then shares of APOG could jump sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, APOG 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 two months and change, with shares moving higher from its low of $22.13 a share to its high of $29.42 a share. During that uptrend, shares of APOG have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of APOG within range of triggering a near-term breakout trade.

If you're in the bull camp on APOG, 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 $29.42 a share to its 52-week high at $30.26 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 196,572 shares. If that breakout hits, then APOG 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 APOG 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 $28 a share to its 50-day moving average at $27.41 a share with high volume. If we get that move, then APOG will set up to re-test or possibly take out its 200-day moving average at $25.89 a share.

Cracker Barrel Old Country Store

One potential earnings short-squeeze candidate is Cracker Barrel Old Country Store (CBRL), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Cracker Barrel Old Country Store to report revenue of $668.68 million on earnings of $1.35 per share.

Just recently, Wunderlich initiated coverage of Cracker Barrel Old Country Store with a hold rating and a $106 per share price target.

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The current short interest as a percentage of the float for Cracker Barrel Old Country Store is notable at 4.6%. That means that out of the 18.46 million shares in the tradable float, 1.08 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.3%, or by 100,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of CBRL could rip sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, CBRL 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 and changes, with shares moving higher from its low of $78.33 to its intraday high of $106.65 a share. During that uptrend, shares of CBRL have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on CBRL, 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 $106.65 a share (or its intraday high on Tuesday if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 141,938 shares. If that breakout triggers, then CBRL will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $110 to $115, or even $120 a share.

I would avoid CBRL 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 $102 a share with high volume. If we get that move, then CBRL will set up to re-test or possibly take out its 50-day moving average of $99.62 a share to more near-term support levels at $96.32 to $94.85 a share.

Clarcor

Another earnings short-squeeze prospect is Clarcor (CLC), a provider of filtration products, filtration systems and services, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Clarcor to report revenue of $298.74 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for Clarcor sits at 3.1%. That means that out of the 49.90 million shares in the tradable float, 1.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 14.1%, or by about 192,000 shares. If the bears are caught pressing their bets into a solid quarter, then shares of CLC could soar sharply higher post-earnings as the bears jump to cover some of those short positions.

From a technical perspective, CLC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last few weeks, with shares moving higher from its low of $52.29 to its intraday high of $57.07 a share. During that uptrend, shares of CLC have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CLC within range of triggering a major breakout trade.

If you're bullish on CLC, 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 $56.75 to its 52-week high at $57.31 a share (or its intraday high on Wednesday if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 170,683 shares. If that breakout triggers, then CLC 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, or even $70 a share.

I would avoid CLC or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $56 to its 50-day moving average of $55.24 share with high volume. If we get that move, then CLC will set up to re-test or possibly take out its next major support levels at $54 to $53 a share, or even its 200-day moving average at $51.90 a share.

Tower Group International

My final earnings short-squeeze play today is property and casualty insurance player Tower Group International (TWPG), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Tower Group International to report revenue of $421.10 million on a loss of 52 cents per share.

The current short interest as a percentage of the float for Tower Group International is pretty high at 7.9%. That means that out of the 53.23 million shares in the tradable float, 2.90 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low float. If the bulls get the earnings news they're looking for, then this stock could easily spike sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, TWGP 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 month and change, with shares plunging from its high of $22.04 a share to its 52-week low of $13.39 a share. During that move, shares of TWGP have been consistently making lower highs and lower lows, which is bearish technical price action. That move also saw shares of TWGP gap down sharply from around $21.50 to $16 a share. This action has pushed shares of TWGP into oversold territory, since the stock's current relative strength reading is 25.38.

If you're in the bull camp on TWGP, 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 $13.39 to $14.36 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 568,536 shares. If that breakout triggers, then TWGP will set up to re-test or possibly take out its next major overhead resistance levels at $16.59 to its 50-day moving average at $17.77 a share.

I would avoid TWGP or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 52-week low at $13.39 a share with high volume. If we get that move, then TWGP will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible targets off that move are $12 to $11 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.