Stock Quotes in this Article: ATU, BOBE, FDS, YGE, ANFI

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.

Bob Evans Farms

My first earnings short-squeeze play is full-service restaurant owner and operator Bob Evans Farms (BOBE), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Bob Evans Farms to report revenue of $333.31 million on earnings of 41 cents per share.

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The current short interest as a percentage of the float for Bob Evans Farms is very high at 16.5%. That means that out of the 22.39 million shares in the tradable float, 3.69 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.4%, or by about 220,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of BOBE could easily soar sharply higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, BOBE is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $44.24 to its recent high of $49.63 a share. During that move, shares of BOBE have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BOBE within range of triggering a big breakout trade post-earnings.

If you're bullish on BOBE, 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 at $50.36 a share and then once it takes out more resistance at $51.59 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 431,571 shares. If that breakout hits post-earnings, then BOBE will set up to re-test or possibly take out its next major overhead resistance levels at $56 to $58, or even $59 a share.

I would simply avoid BOBE 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 $46.45 a share with high volume. If we get that move, then BOBE will set up to re-test or possibly take out its next major support levels at $44.24 to $42.90 a share.

Amira Nature Foods

Another potential earnings short-squeeze trade idea is packaged specialty rice and other food products player Amira Nature Foods (ANFI), which is set to release its numbers on Monday after the market close. Wall Street analysts, on average, expect Amira Nature Foods to report revenue $162.20 million on earnings of 33 cents per share.

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Just recently, Jefferies downgraded shares of Amira Nature Foods to hold from buy, saying it will likely take time for the company to restore investor confidence. The firm also lowered its price target on Amira to $15 from $25 per share.

The current short interest as a percentage of the float for Amira Nature Foods is extremely high at 25%. That means that out of the 15.99 million shares in the tradable float, 4.06 million shares are sold short by the bears. This is a large short interest on a stock with a very low tradable float. If the bulls get the earnings news they're looking for, then shares of ANFI could easily explode sharply higher post-earnings as the bears move to cover some of their bets.

From a technical perspective, ANFI 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 and change, with shares falling from its high of $20.29 to its recent low of $12.22 a share. During that move, shares of ANFI have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of ANFI have recently formed a triple bottom chart pattern at $12.33, $12.22 and $12.68 a share.

If you're in the bull camp on ANFI, 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 $13.97 to $14.15 a share high volume. Look for volume on that move that hits near or above its three-month average action of 170,947 shares. If that breakout begins post-earnings, then ANFI will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $14.94 to its 200-day moving average of $15.50 a share. Any high-volume move above those levels will then give ANFI a chance to tag $15.60 to $16 a share.

I would simply avoid ANFI 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 $12.68 to $12.22 a share with high volume. If we get that move, then ANFI will set up to re-test or possibly take out its next major support level at $10 a share.

FactSet Research Systems

Another potential earnings short-squeeze candidate 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 $230.66 million on earnings of $1.25 per share.

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The current short interest as a percentage of the float for FactSet Research Systems is very high at 15.9%. That means that out of the 39.22 million shares in the tradable float, 6.23 million shares are sold short by the bears. This stock sports a large short interest with a relatively low tradable float. Any bullish earnings news post-earnings could easily spark a big short-squeeze for shares of FDS as the bears rush to cover some of their positions.

From a technical perspective, FDS is currently trending above its 50-day and its 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 $101.94 to its recent high of $114.11 a share. During that uptrend, shares of FDS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FDS within range of triggering a big breakout trade post-earnings.

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 some key overhead resistance levels at $114.11 to $114.41 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 316,105 shares. If that breakout materializes post-earnings, then FDS will set up to re-test or possibly take out its 52-week high at $119.08 a share.

I would 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 levels at $110 to $109 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 200-day moving average of $107.36 to its 50-day moving average at $106.56 a share.

Yingli Green Energy

Another earnings short-squeeze prospect is solar energy player Yingli Green Energy (YGE), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Yingli Green Energy to report revenue of $464.04 million on a loss of 24 cents per share.

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The current short interest as a percentage of the float for Yingli Green Energy is very high at 12.7%. That means that out of the 110.27 million shares in the tradable float, 14.10 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.4%, or by about 1.32 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of YGE could rip sharply higher post-earnings as the shorts jump to cover some of their positions.

From a technical perspective, YGE is currently trending below both its 50-day and is 200-day moving averages, which is bearish. This stock recently formed a triple bottom chart pattern at $2.79, $2.77 and $2.68 a share. Following that bottom, shares of YGE have started to rebound sharply higher and move within range of triggering a major breakout trade post-earnings.

If you're bullish on YGE, 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 of $3.43 a share and then once it takes out more key overhead resistance levels at $3.55 to its gap-down-day high from April at $3.73 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 5.29 million shares. If that breakout kicks off post-earnings, then YGE will set up to re-fill its previous gap-down-day zone that started at $4.50 a share.

I would simply avoid YGE or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below $3 a share with high volume. If we get that move, then YGE will set up to re-test or possibly take out its 52-week low of $2.68 a share. Any high-volume move below that level will then push YGE into new 52-week-low territory, which is bearish technical price action.

Actuant

My final earnings short-squeeze trade idea is industrial products and systems manufacturer and distributor Actuant (ATU), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Actuant to report revenue of $376.43 million on earnings of 63 cents per share.

The current short interest as a percentage of the float for Actuant stands at 4.2%. That means that out of the 65.74 million shares in the tradable float, 2.81 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-covering rally post-earnings if the bulls get the earnings news they're looking for.

From a technical perspective, ATU is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending for the last three months and change, with shares moving higher from its low of $32.37 to its recent high of $36.74 a share. During that uptrend, shares of ATU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ATU within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on ATU, 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 $36.74 to $37.29 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 635,400 shares. If that breakout hits post-earnings, then ATU will set up to re-test or possibly take out its next major overhead resistance levels at $39.27 to its 52-week high at $39.84 a share.

I would avoid ATU 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 $34.70 a share with high volume. If we get that move, then ATU will set up to re-test or possibly take out its next major support levels at $33 to $32 a share. Any high-volume move below those levels will then give ATU a chance to re-test or possibly take out its 52-week low of $31.18 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.