Stock Quotes in this Article: APOG, APOL, BKS, LNN, MU

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.

Lindsay

My first earnings short-squeeze play is water management and road infrastructure products and services provider Lindsay (LNN), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Lindsay to report revenue of $184.29 million on earnings of $1.43 per share.

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The current short interest as a percentage of the float for Lindsay is extremely high at 33%. That means that out of the 12.53 million shares in the tradable float, 4.14 million shares are sold short by the bears. This stock sports a large short interest and has a very low tradable float. This is the type of situation that can produce a monster short-squeeze if Lindsay can produce the earnings results the bulls are looking for.

From a technical perspective, LNN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a triple bottom chart pattern at $82.66, $82.35 and $82.50 a share. Following that bottom, shares of LNN have started spike higher and move back above its 50-day moving average. That spike has now pushed shares of LNN within range of triggering a major breakout trade post-earnings.

If you're bullish on LNN, 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 $89.82 to $91.32 a share and then once it clears its 52-week high of $92.93 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 147,389 shares. If that breakout materializes post-earnings, then LNN will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $100 to $110, or even north of $110 a share.

I would simply avoid LNN 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 $86.56 a share with high volume. If we get that move, then LNN will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $82.51 to $77.26 a share.

Apollo Education Group

Another potential earnings short-squeeze trade idea is online and on-campus education programs and services provider Apollo Education Group (APOL), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Apollo Education Group to report revenue $794.43 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for Apollo Education Group is pretty high at 9.7%. That means that out of the 98.76 million shares in the tradable float, 9.52 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of APOL could easily jump sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, APOL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit for the last month, with shares moving higher from its low of $26.05 to its recent high of $30.08 a share. During that uptrend, shares of APOL have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of APOL within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on APOL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $30.08 to $30.27 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.05 million shares. If that breakout gets set off post-earnings, then APOL will set up to re-test or possibly take out its next major overhead resistance levels at $35.23 to its 52-week high at $35.92 a share. Any high-volume move above those levels will then give APOL a chance to tag $40 a share.

I would simply avoid APOL 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 $28.23 a share and below its 200-day moving average of $27.90 a share with high volume. If we get that action, then APOL will set up to re-test or possibly take out its next major support levels at $26.05 to $24 a share. Any high-volume move below $24 will then give APOL a chance to re-fill some of its previous gap-up-day zone from 2013 that started at $20 a share.

Micron Technology

Another potential earnings short-squeeze candidate is semiconductor solutions player Micron Technology (MU), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Micron Technology to report revenue of $3.89 billion on earnings of 70 cents per share.

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Just recently, Piper Jaffray raised its price target on Micron to $39 from $30 ahead of the company's third-quarter results, citing solid industry pricing dynamics for DRAM and NAND. The firm has an overweight rating on the stock.

The current short interest as a percentage of the float for Micron Technology is pretty high at 10.3%. That means that out of the 1.06 billion shares in the tradable float, 109.98 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of MU could easily explode sharply higher post-earnings as the bears rush to cover some if their positions.

From a technical perspective, MU 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, with shares moving higher from its low of $21.02 to its recent high of $32.43 a share. During that uptrend, shares of MU have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MU within range of triggering a big breakout trade post-earnings.

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 its 52-week high of $32.43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 29.12 million shares. If that breakout starts post-earnings, 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 $40 to $45 a share.

I would 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 $30 to $29 a share with 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 50-day moving average of $27.47 to $25 a share.

Apogee Enterprises

Another earnings short-squeeze prospect is value-added glass products, services and systems player Apogee Enterprises (APOG), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Apogee Enterprises to report revenue of $210.64 million on earnings of 25 cents per share.

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Just recently, DA Davidson upgraded shares of Apogee Enterprises to buy from neutral based on relative valuation and market recovery potential. The firm also slapped a $36 per share price target on the stock.

The current short interest as a percentage of the float for Apogee Enterprises is notable at 4.7%. That means that out of the 28.09 million shares in the tradable float, 1.34 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 for shares of APOG post-earnings if the bulls get the news they're looking for.

From a technical perspective, APOG is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at $28.19 to $28.27 a share. Following that bottom, shares of APOG have started to uptrend and move within range of triggering a near-term breakout trade post-earnings.

If you're bullish 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 levels at $32.12 to its 200-day moving average of $32.30 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 175,078 shares. If that breakout gets underway post-earnings, then APOG will set up to re-test or possibly take out its next major overhead resistance levels at $34 to $35.50 a share. Any high-volume move above those levels will then give APOG a chance to re-test or possibly take out its 52-week high of $37.73 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 its 50-day moving average of $30.68 a share and below more support at $30 a share with high volume. If we get that move, then APOG will set up to re-test or possibly take out its next major support levels at $28.27 to $29.19 a share.

Barnes & Noble

My final earnings short-squeeze play is content, commerce and technology player Barnes & Noble (BKS), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Barnes & Noble to report revenue of $1.19 billion on a loss of 59 cents per share.

The current short interest as a percentage of the float for Barnes & Noble is extremely high at 22%. That means that out of the 38.64 million shares in the tradable float, 8.68 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.1%, or by about 572,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of BKS could easily rip sharply higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, BKS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month and change, with shares moving higher from its low of $15.45 to its recent high of $21.30 a share. During that uptrend, shares of BKS have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BKS within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on BKS, 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 $21.30 to $22.12 a share and then once it takes out its 52-week high at $22.41 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 1.42 million shares. If that breakout hits post-earnings, then BKS will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $26 to $30, or north of $30 a share.

I would avoid BKS 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 $19 a share with high volume. If we get that move, then BKS will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $17.86 a share to its 200-day moving average of $16.40 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.