Stock Quotes in this Article: DDD, REGN, WRLD, TRIP, SYNC

WINDERMERE, Fla. (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.

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 timeframe that your profits add up quickly.

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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. That’s why it can be worth betting prior to the report -- but only if you have a very strong conviction that the stock is going to rip higher, and its acting technically very bullish. Remember, even when you have that conviction and you 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, and then jump in and trade the prevailing trend on a heavily-shorted stock that’s reporting its numbers.

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

TripAdvisor

My first earnings short-squeeze play is online travel research player TripAdvisor (TRIP), which is set to report results on Tuesday after the market close. This company features reviews and advice on hotels, resorts, flights, vacation rentals, vacation packages and travel guides. Wall Street analysts, on average, expect Tripadvisor to report revenue of $202.78 million on earnings of 41 cents per share.

If you’re looking for a strong-trending heavily shorted stock heading into its earnings report this week, then make sure to check out shares of Tripadvisor. This stock has been on an absolute tear so far in 2012 with shares up around 80%. Shares of Tripadvisor are so strong that it’s trending just 2 points off its 52-week high of $47.81 as we approach its earnings report.

The current short interest as a percentage of the float for Tripadvisor stands at 9.6%. That means that out of the 92.52 million shares in the tradable float, 9.91 million shares are sold short by the bears. If Tripadvisor can manage to please the bulls with a strong report, then we could easily see a sizeable short squeeze develop post-earnings.

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From a technical perspective, TRIP is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending extremely strong for the past six months, with shares soaring from a low of $26.93 to a recent high of $47.81 a share. During that uptrend, TRIP has been consistently making higher highs and higher lows, which is bullish price action. That move has now pushed TRIP within range of triggering a major breakout trade post-earnings.

If you’re bullish on TRIP, then I would wait until after earnings and look for long-biased trades if this stock can manage to trigger a breakout above some near-term overhead resistance at $47.81 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.1 million shares. If we get that move, then TRIP will have an excellent chance of trading well north of $50 a share, since the stock will enter new all-time-high territory.

I would simply avoid TRIP or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below its 50-day moving average of $43.93, and below some more support at $43.26 to $42.18 a share with high volume. If we get that action, then TRIP could easily trade down to $36 to $33 a share if the bears hammer this lower post-earnings.

TripAdvisor, one of Blue Ridge Capital's holdings as of the most recently reported period, was one of the 10 Best-Performing S&L 500 Stocks in the Second Quartwer.

Regeneron Pharmaceuticals

A potential earnings short-squeeze play in the biotechnology and drugs complex is Regeneron Pharmaceuticals (REGN), which is set to release its numbers on Wednesday before the market open. This is an integrated biopharmaceutical firm, which discovers, invents, develops, manufactures and commercializes medicines for the treatment of serious medical conditions. Wall Street analysts, on average, expect Regeneron Pharmaceuticals to report revenue of $255.98 million on earnings of 25 cents per share.

If you’re looking for a strong uptrending heavily-shorted biotech player ahead of its earnings report, then make sure to check out shares of Regeneron Pharmaceuticals. This stock has been on fire so far in 2012, with shares up over 121% so far. The current short interest as a percentage of the float for Regeneron Pharmaceuticals is notable at 6.3%. That means that out of the 88.13 million shares in the tradable float, 4.63 million shares are sold short by the bears.

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From a technical perspective, REGN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently found some big buying interest at around $107.31 to $111.50 a share. Since those buyers stepped in during the last month, shares of REGN have started to trend higher toward its current price of $122.50 a share and it’s also moved within range of triggering a near-term breakout trade.

If you’re in the bull camp on REGN, then I would wait until after its report and look for long-biased trades if this stock manages to take out some near-term overhead resistance at $124.85 a share (or its daily high from Tuesday if it’s higher) with heavy volume. Look for volume on that move that registers near or above its three-month average action of 963,006 shares. If we get that move, then REGN will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $135 to $137.82 a share post-earnings.

I would simply avoid REGN or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then moves back below Monday’s low of $118.01 a share with heavy volume. If we get that move, then REGN will be trending back below its 50-day moving average of $122.51 a share, and this stock will likely head back towards those near-term support levels at $111.50 to $107.31 a share. If REGN takes out $107.31 a share with volume post-earnings, then this stock could easily fall all the way back towards its 200-day moving average of $95.68 a share if the bears slam this stock post-earnings.

Regeneron shows up on a recent list of 10 Stocks of Top-Performing Mutual Funds in 2012.

3D Systems

Another potential earnings short-squeeze trade is 3D Systems (DDD), which is set to release numbers on Thursday before the market open. This company is a provider of three-dimensional content-to-print solutions including 3D printers, print materials and on-demand custom parts services for professionals and consumers. Wall Street analysts, on average, expect 3D Systems to report revenue of $84.10 million on earnings of 27 cents per share.

Last Thursday, JPMorgan downgraded shares of 3D Systems to underweight from neutral with a price target of $34.50 a share, citing the big run in the stock of 148% on the year, and there is probably little upside in the near term. That said, the trend is your friend in the markets, and 3D Systems is uptrending strong as we get closer to its earnings report.

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The current short interest as a percentage of the float for 3D Systems is extremely high at 18.8%. That means that out of the 46.43 million shares in the tradable float, 9.39 million shares are sold short by the bears. This is a very large short interest on a stock with a relatively low tradable float. Taking that into account, along with this stock’s strong uptrend, we could easily see a monster short-squeeze develop post-earnings if 3D Systems delivers the news the bulls are looking for.

From a technical perspective, DDD is currently trading above 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 from a low of $20.10 to its recent high of $37 a share. During that move, shares of DDD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has quickly pushed DDD within range of triggering a major breakout trade post-earnings.

If you’re bullish on DDD, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $36.24 to $37 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1 million shares. If we get that action, then look for DDD to trade north of $40 a share post-earnings.

I would avoid DDD or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below its 50-day moving average of $31.71 a share with heavy volume. If we get that action, then DDD could easily take out some more support at $30 a share and possibly trend down toward $27.50 a share if the bears hammer this stock post-earnings.

World Acceptance

A potential earnings short-squeeze trade in the financial services complex is World Acceptance (WRLD), which is set to release numbers on Thursday before the market open. This company operates a small-loan consumer finance business in 12 states and Mexico. Wall Street analysts, on average, expect World Acceptance to report revenue of $133.85 million on earnings of $1.50 per share.

Recently, FBR analyst Bob Ramsey said that World Acceptance is one of the names within FBR's coverage universe with the best chances to surprise to the upside, given its strong share repurchase activity that does not appear to be fully in consensus numbers. Stephens analyst John Hect echoed the same thoughts, saying he expects upside to earnings due largely to increased share repurchase activity. That said, Herb Greenberg has raised some issues with WRLD.

The current short interest as a percentage of the float for World Acceptance is extremely high at 25%. That means that out of the 10.60 million shares in the tradable float, 3.11 million shares are sold short by the bears. Any solid earnings news out of this company could easily kickoff a monster short squeeze, since the short interest is so high and the float is extremely low.

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From a technical perspective, WRLD is currently trading above its 200-day moving average and right below its 50-day moving average, which is neutral trendwise. This stock has found some big-time buying interest for the last month and change whenever it’s pulled back toward the $65 to $64.56 levels. Shares of WRLD broke out above some past resistance levels at around $70 to $71.08 a share a few weeks ago, and it subsequently ran up to a near-term high of $75.68 a share. Since triggering that breakout trade, shares of WRLD have moved back below those breakout levels and it’s now trending right around its 50-day moving average of $67.82 a share.

If you’re in the bull camp on WRLD, then I would look for long-biased trades after earnings if this stock manages to trigger a near-term breakout above overhead resistance at $69 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 143,863 shares. If we get that move, then WRLD could easily short-squeeze and take out its recent high of $75.68 a share post-earnings.

I would simply avoid WRLD or look for short-biased trades after earnings the stock fails to trigger that breakout, and then moves back below its 200-day moving average of $66.07 and below those major support zones at $65 to $64.45 a share with heavy volume. If we get that move, then WRLD could easily fall towards $62 to $58 a share if the bears pound this stock lower post-earnings.

Synacor

My final earnings short-squeeze play today is computer services player Synacor (SYNC), which is set to release numbers on Wednesday after the market close. This company is a provider of solutions for delivery of online content and services. Wall Street analysts, on average, expect Synacor to report revenue of $30.68 million on earnings of 4 cents per share.

This stock has been uptrending extremely strong as we approach its earnings report this week, with shares up over 150% so far in 2012. Despite that strong uptrend, shares of Synacor have recently pulled back off its 52-week high of $18 a share to its current price of around $12.80 a share.

The current short interest as a percentage of the float for Synacor is extremely high at 29.5%. That means that out of the 7.91 million shares in the tradable float, 2.96 million 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 163,000 shares. If the bear are caught learning too hard into this quarter, and Synacor delivers the news the bulls are looking for, then we could get a monster short-squeeze post-earnings.

From a technical perspective, SYNC is currently trading right above its 50-day moving average, which is bullish. This stock has been on a tear for the last five months, with shares skyrocketing from its low of $4.75 to its recent high of $18 a share. During that move, shares of SYNC have consistently made higher lows and higher highs, which is bullish technical price action. That said, this stock recently moved back below its 50-day moving average of $12.82 with heavy volume and hit a near-term low of $10.86 a share.

If you’re bullish on SYNC, then I would wait until after it reports earnings and look for long-biased trades if this stock manages to maintain a trend above its 50-day moving average of $12.82 a share with strong upside volume flows. Look for volume that registers near or above its three-month average action of 1,174,910 shares. If we get that move, then SYNC will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $15 to $18 a share.

I would simply avoid SYNC or look for short-biased trades if this stock fails to hold a trend above its 50-day, and then drops below some near-term support at $12 a share with heavy volume. If we get that action, then look for SYNC to re-test and possibly take out its next major support level at $10.86 a share post-earnings.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.