Stock Quotes in this Article: EXPE, TASR, SODA, BODY, LOCK

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.

SodaStream International

My first earnings short-squeeze play is SodaStream International (SODA), which makes home beverage carbonation systems and related products and is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect SodaStream International to report revenue of $145.20 million on earnings of 72 cents per share.

This company is expected to extend its streak of double-digit sales gains for the 17th straight quarter, when they report their third quarter results this week. SodaStream has topped Wall Street revenue estimates in the past seven quarters and earnings estimates in five of the past seven quarters.

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The current short interest as a percentage of the float SodaStream International is extremely high at 46.8%. That means that out of the 19.54 million shares in the tradable float, 8.71 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.2%, or by 584,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of SODA could rip sharply higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, SODA is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been downtrending for the last two months, with shares dropping from its high of $69.78 to its recent low of $59.20 a share. That said, shares of SODA have started to rebound a bit off that $59.20 low and move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on SODA, 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 of $63.61 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 915,814 shares. If that breakout hits, then SODA will set up to re-test or possibly take out its next major overhead resistance levels at $67 to $70 a share. Any high-volume move above $70 will then give SODA a chance to tag its next major overhead resistance levels at $74 to $78 a share.

I would simply avoid SODA 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 $60 to its 200-day moving average of $58.77 a share with high volume. If we get that move, then SODA will set up to re-test or possibly take out its next major support levels at $55 to $50 a share.

Taser International

Another potential earnings short-squeeze trade idea is stun gun maker Taser International (TASR), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Taser International to report revenue of $32.56 million on earnings of 8 cents per share.

The current short interest as a percentage of the float for Taser International is notable at 6.2%. That means that out of the 49.16 million shares in the tradable float, 3.07 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a solid short-covering rally if Taser International can produce results the bulls love.

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From a technical perspective, TASR 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 $8.57 to its recent high of $17.16 a share. During that move, shares of TASR have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TASR within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on TASR, 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 $16.14 and its 52-week high at $17.16 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.46 million shares. If that breakout hits, then TASR will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $23 to $25 a share.

I would simply avoid TASR 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 $14.93 to its 50-day moving average of $13.83 a share with high volume. If we get that move, then TASR will set up to re-test or possibly take out its next major support levels at $13.45 to $12 a share, or even $11 a share.

LifeLock

One potential earnings short-squeeze candidate is LifeLock (LOCK), a provider of proactive identify theft protection services, which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect LifeLock to report revenue of $93.29 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for LifeLock is very high at 15.2 %. That means that out of the 36.57 million shares in the tradable float, 6.36 million shares are sold short by the bears. This is a very high short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of LOCK post-earnings.

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From a technical perspective, LOCK 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 $9.04 to its recent high of $15.21 a share. During that uptrend, shares of LOCK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed LOCK within range of triggering a near-term breakout trade post-earnings.

If you're bullish on LOCK, 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 $14.87 to $14.99 a share and then once it takes out its all-time high at $15.21 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 900,702 shares. If that breakout hits, then LOCK will set up enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $23 a share.

I would avoid LOCK 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 $13.92 a share to some more near-term support at $13.16 a share with high volume. If we get that move, then LOCK will set up to re-test or possibly take out its next major support levels at $12 to its 200-day moving average of $11.33 a share.

Body Central

Another earnings short-squeeze prospect is women's clothing retail store operator Body Central (BODY), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Body Central to report revenue of $66.01 million on a loss of 19 cents per share.

Just last month, Jefferies said that Body Central was an attractive leveraged buyout target. If the company can report a turnaround quarter this week, then that case could get accelerated with shares off sharply by 44% so far in 2013.

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The current short interest as a percentage of the float for Body Central sits at 7.8%. That means that out of the 13.81 million shares in the tradable float, 1.25 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 24.1%, or by 243,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of BODY could explode higher post-earnings as the bears jump to cover some of their bets.

From a technical perspective, BODY 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 three months, with shares dropping sharply from its high just over $8 to its recent low of $5.09 a share. During that downtrend, shares of BODY have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of BODY have now started to bounce off that $5.09 low and it's moving within range of triggering a near-term breakout trade.

If you're bullish on BODY, 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 $5.62 a share to its 50-day moving average of $6.02 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 350,454 shares. If that breakout triggers, the BODY will set up to re-test or possibly take out its next major overhead resistance levels at $6.78 to $7.75 a share.

I would simply avoid BODY 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 $5.09 a share with high volume. If we get that move, then BODY will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $4 to $3.50 a share.

Expedia

My final earnings short-squeeze play is online travel player Expedia (EXPE), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Expedia to report revenue of $1.37 billion on earnings of $1.35 per share.

Just recently, a Deutsche Bank analyst downgraded shares of Expedia to hold from buy, saying he's worried that the company will continue to struggle with tough competition and may cut its guidance for the year.

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The current short interest as a percentage of the float for Expedia is very high at 13.6%. That means that out of the 107.15 million shares in the tradable float, 14.58 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.7%, or by about 1.66 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of EXPE could easily rip sharply higher post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, EXPE is currently trending just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending modestly for the last few weeks, with shares moving higher from its low of $47.26 to its recent high of $51.21 a share. During that move, shares of EXPE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of EXPE within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on EXPE, 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 $51.21 to $51.95 a share and then above more key near-term overhead resistance at $54.12 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 4.31 million shares. If that breakout triggers, then EXPE will set up re-fill some of its previous gap down zone from July that started at $64 a share.

I would avoid EXPE 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 at $50.08 a share with high volume. If we get that move, then EXPE will set up to re-test or possibly take out its next major support levels at $47.26 to $45.55 a share. Any high-volume move above $45.55 a share will then push EXPE into new 52-week-low territory, which is bearish technical price action.

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.