Stock Quotes in this Article: AYI, GBX, ISCA, SHLM, STZ

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 earningsrelated 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.

Acuity Brands

My first earnings short-squeeze trade idea is lightning solutions provider Acuity Brands (AYI), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Acuity Brands to report revenue of $518.76 million on earnings of 88 cents per share.

This company has only beaten Wall Street estimates one time in the last four quarters. During the last quarter, Acuity Brands reported revenue of $486.7 million, and GAAP reported sales were 6.3% higher than the prior-year quarter's $457.7 million. Also last quarter, non-GAAP EPS was 62 cents per share and GAAP EPS was 57 cents per share, which was 24% higher than the prior-year quarter's 46 cents per share.

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The current short interest as a percentage of the float for Acuity Brands is notable at 7.8%. That means that out of the 41.66 million shares in the tradable float, 3.33 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of AYI could easily spike sharply higher post-earnings.

From a technical perspective, AYI 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 moving higher from its low of $62.16 to its recent high of $79.16 a share. During that move, shares of AYI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AYI within range of triggering a near-term breakout trade post-earnings.

If you're bullish on AYI, 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 $78.67 to its 52-week high at $79.16 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 350,995 shares. If that breakout hits, then AYI will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $85 to $90 a share, or even $95 a share.

I would simply avoid AYI 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 $74.89 a share with high volume. If we get that move, then AYI will set up to re-test or possibly take out its next major support levels at $70 to its 200-day moving average at $69.07 a share.

Constellation Brands

Another potential earnings short-squeeze play is producer and marketer of beverage alcohol products Constellation Brands (STZ), which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Constellation Brands to report revenue of $674.24 million on earnings of 41 cents per share.

During the last quarter, this company reported revenue of $696 million and GAAP reported sales were 11% higher than the prior-year quarter's $628.1 million. Also in the last quarter, non-GAAP EPS was 47 cents per share and GAAP EPS was 44 cents per share, which was 14% lower than the prior-year quarter's 51 cents per share.

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The current short interest as a percentage of the float for Constellation Brands sits at 4.1%. That means that out of the 154.20 million shares in the tradable float, 6.38 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 16.5%, or by about 906,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of STZ could spike sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, STZ is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has just started to bounce higher off its 50-day moving average of $51.08 a share, after pulling back from its recent high of $54.64 a share. That bounce is quickly pushing shares of STZ within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on STZ, 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 $53.62 to its 52-week high at $54.64 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.26 million shares. If that breakout triggers, then STZ 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, or even $70 a share.

I would simply avoid STZ 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 $51.08 a share and then below some key near-term support at $49.09 a share with high volume. If we get that move, then STZ will set up to re-test or possibly take out its 200-day moving average at $41.50 a share.

Greenbrier

One potential earnings short-squeeze candidate is designer, manufacturer and marketer of railroad freight car equipment Greenbrier (GBX), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Greenbrier to report revenue of $503.08 million on earnings of 55 cents per share.

The current short interest as a percentage of the float for Greenbrier is pretty high at 15.1%. That means that out of the 20.67 million shares in the tradable float, 3.70 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4%, or by about 140,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of GBX could easily see a solid short-squeeze post-earnings.

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From a technical perspective, GBX 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 $17.15 to its recent high of $25.33 a share. During that uptrend, shares of GBX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GBX within range of triggering a near-term breakout trade post-earnings.

If you're bullish on GBX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above is 52-week high at $25.33 and above some past overhead resistance at $26.66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 459,223 shares. If we get that breakout, then GBX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $35 a share.

I would avoid GBX 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 $23.60 a share and then below some key near-term support at $22.05 a share with high volume. If we get that move, then GBX will set up to re-test or possibly take out its next major support level at its 200-day moving average of $19.95 a share to $18 a share.

International Speedway

Another earnings short-squeeze prospect is owner of motorsports entertainment facilities and promoter of motorsports themed entertainment activities International Speedway (ISCA), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect International Speedway to report revenue of $182.30 million on earnings of 50 cents per share.

The current short interest as a percentage of the float for International Speedway stands at 5%. That means that out of the 35.51 million shares in the tradable float, 1.28 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.2%, or by about 26,000 shares. If the bears are caught pressing their bets into a solid quarter, then shares of ISCA could easily trend sharply higher post-earnings.

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From a technical perspective, ISCA is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending for the last months, with shares moving lower from its high of $35.53 to its recent low of $31.01 a share. During that downtrend, shares of ISCA have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of ISCA have started to bounce off that $31.01 low and are now moving within range of triggering a near-term breakout trade.

If you're bullish on ISCA, 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 at $33.48 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 116,411 shares. If that breakout triggers, then ISCA will set up to re-test or possibly take out its next major overhead resistance levels at $35 to its 52-week high at $35.75 a share. Any high-volume move above $35.75 could then send shares of ISCA north of $40 a share.

I would avoid ISCA 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 $31.01 a share and then below its 200-day at $29.62 a share with high volume. If we get that move, then ISCA will set up to re-test or possibly take out its next major support levels at $27 to $26 a share.

A. Schulman

My final earnings short-squeeze trade idea tpday is suppler of plastic compounds, resins and services A. Schulman (SHLM), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect A. Schulman to report revenue of $576.10 million on earnings of 65 cents per share.

This company has beaten Wall Street estimates three times in the last four quarters, so another solid beat this quarter could easily get this stock juiced to the upside post-earnings.

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The current short interest as a percentage of the float for A. Schulman sits at 2.4%. That means that out of the 28.70 million shares in the tradable float, 699,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.8%, or by about 661,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of SHLM could spike notably higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, SHLM 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 downtrending for the last month and change, with shares moving lower from its high of $29.95 to its recent low of $25.53 a share. During that move, shares of SHLM have been mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of SHLM have just started to bounce off that $25.53 low and are now quickly moving within range of triggering a near-term breakout trade.

If you're in the bull camp on SHLM, 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 at $27.76 a share and then above more overhead resistance at $29.95 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 190,788 shares. If we get that breakout, then SCHN will set up to re-test or possibly take out its next major overhead resistance levels at $32.50 to $33.14 a share. Any high-volume move above that level will then put $35 to $40 into range for shares of SHLM.

I would avoid SHLM 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 $27.54 a share with high volume. If we get that move, then SHLM will set up to re-test or possibly take out its next major support levels at $25.53 to $24.61 a share, or even $23 a share. Any high-volume move below $23 could then send SHLM towards $20 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.