Stock Quotes in this Article: CIEN, GIII, HOV, NAV, VNCE

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 Wall 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.




With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

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G-III Apparel Group

My first earnings short-squeeze play is apparel player G-III Apparel Group (GIII), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect G-III Apparel Group to report revenue of $390.98 million on earnings of 16 cents per share.

Recently, Wunderlich Securities initiated coverage on shares of G-III Apparel Group with a buy rating and a $92 per share price target. Wunderlich thinks the company's management team is in the right position to drive organic and acquisition-driven growth and that G-II Apparel Group is among the top-positioned players in the apparel sector.

The current short interest as a percentage of the float for G-III Apparel Group is notable at 7.3%. That means that out of the 17.42 million shares in the tradable float, 1.28 million shares are sold short by the bears. This is a decent short interest on a stock with a very low float. Any bullish earnings news could easily spark a sharp short-covering rally post-earnings as the bears jump to cover some of their bets.

From a technical perspective, GIII is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $76.43 to its recent high of $84.95 a share. During that move, shares of GIII have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GII within range of triggering a big breakout trade post-earnings.

If you're bullish on GIII, 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 $84.95 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 226,675 shares. If that breakout triggers post-earnings, then GIII 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 a share.

I would simply avoid GIII 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 $80.54 a share with high volume. If we get that move, then GIII will set up to re-test or possibly take out its next major support levels at $76.43 to its 200-day moving average of $73.26 a share.

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Navistar International

Another potential earnings short-squeeze trade idea is heavy machinery and vehicles player Navistar (NAV), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Navistar to report revenue $2.96 billion on a loss of 66 cents per share.

The current short interest as a percentage of the float for Navistar is extremely high at 29%. That means that out of the 34.79 million shares in the tradable float, 10.10 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of HAV could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

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 uptrending over the last month, with shares moving higher from its low of $33.59 to its recent high of $39.26 a share. During that uptrend, shares of NAV have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NAV within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

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 key overhead resistance levels at $39.26 to $39.45 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 684,080 shares. If that breakout hits post-earnings, then NAV will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $41.57 a share. Any high-volume move above that level will then give NAV a chance to make a run at $45 to $50 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 both its 50-day at $37 a share to its 200-day at $36.35 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 $33.59 to $32 a share.

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Ciena

Another potential earnings short-squeeze candidate is communications networking equipment player Ciena (CIEN), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Ciena to report revenue of $600.81 million on earnings of 29 cents per share.

The current short interest as a percentage of the float for Ciena is extremely high at 17.5%. That means that out of the 103.42 million shares in the tradable float, 18.16 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of CIEN could easily rip sharply higher post-earnings as the bears move quickly to cover some of their positions.

From a technical perspective, CIEN 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 $18.54 to $18.64 a share. Following that bottom, shares of CIEN have started to uptrend with the stock moving back above its 50-day moving average. That move has now pushed shares of CIEN within range of trade triggering a near-term breakout post-earnings above some key overhead resistance levels.

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 some near-term overhead resistance at $20.98 a share to its 200-day moving average at $21.65 a share and then above more key resistance levels at $22.50 to $23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.07 million shares. If that breakout develops post-earnings, then CIEN will set up to re-test or possibly take out its next major overhead resistance levels at $24.21 to $24.80 a share, or even $27 to its 52-week high at $27.94 a share.

I would avoid CIEN or look for short-biased trades if after earnings it fails to trigger that breakout and drops back below its 50-day moving average of $20.24 a share to more near-term support at $20 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 at $18.64 to $18.54 a share. Any high-volume move below those levels will then give CIEN a chance to re-test or possibly take out its 52-week low of $18 a share.

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Vince Holding

Another earnings short-squeeze prospect is diversified apparel player Vince Holding (VNCE), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Vince Holding to report revenue of $83.92 million on earnings of 24 cents per share.

The current short interest as a percentage of the float for Vince Holding is pretty high at 8.1%. That means that out of the 14.82 million shares in the tradable float, 1.21 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news post-earnings could easily set off a sharp short-covering rally for shares of VNCE post-earnings that forces the bears to cover some of their trades.

From a technical perspective, VNCE is currently trending above its 50-day moving average, which is bullish. This stock has been uptrending over the last month, with shares moving higher from its low of $32.19 to its recent high of $38.10 a share. During that uptrend, shares of VNCE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VNCE within range of triggering a big breakout trade post-earnings.

If you're bullish on VNCE, 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 $38 a share to its all-time high at $38.10 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 312,569 shares. If that breakout materializes post-earnings, then VNCE will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that move are $50 to $55 a share.

I would simply avoid VNCE or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 50-day moving average of $34.78 a share to more near-term support at $34 a share with high volume. If we get that move, then VNCE will set up to re-test or possibly take out its next major support level at $32.19 a share. Any high-volume move below that level will then give VNCE a chance to tag its next major support levels at $29 to $27 a share.

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Hovnanian Enterprises

My final earnings short-squeeze play is homebuilding player Hovnanian Enterprises (HOV), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Hovnanian Enterprises to report revenue of $559.57 million on earnings of 9 cents per share.

The current short interest as a percentage of the float for Hovnanian Enterprises is very high at 16.6%. That means that out of the 117.35 million shares in the tradable float, 19.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.9%, or by about 1.08 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of HOV could easily explode sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, HOV is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $3.75 a share to its recent high of $4.40 a share. During that move, shares of HOV have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of HOV within range of triggering a near-term breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on HOV, 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 $4.40 to $4.75 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.70 million shares. If that breakout develops post-earnings, then HOV will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $4.98 a share to $5.31 a share. Any high-volume move above $5.31 a share will then give HOV a chance to tag $6 a share.

I would avoid HOV 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 $4.13 to $4 a share with high volume. If we get that move, then HOV will set up to re-test or possibly take out its next major support level at its 52-week low
of $3.75 a share. 


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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.