Stock Quotes in this Article: ANGO, IGTE, NG, OZRK, PDLI

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.

>>5 Rocket Stocks to Buy for Earnings Season

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.

>>ACTIVE STOCK TRADERS: Check out Stockpickr’s special offer for Real Money, headlined by Jim Cramer, now!

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.

AngioDynamics

My first earnings short-squeeze trade idea is medical equipment and supplies player AngioDynamics (ANGO), which is set to report results on Thursday after the market close. This company designs, develops, manufactures, and markets various therapeutic and diagnostic devices that enable interventional physicians to treat PVD, tumors and other non-coronary diseases. Wall Street analysts, on average, expect AngioDynamics to report revenue of $52.97 million on earnings of 9 cents per share.

This company has met or beaten Wall Street estimates in the last four quarters. During the last quarter, AngioDynamics reported earnings per share of 9 cents vs. estimates of 8 cents per share. On June 24, this stock was downgraded by Canaccord Genuity from buy to hold and had its price target lowered from to $14.50 from $16.50. Canaccord said it’s cautious on the stock until it sees synergies from its Navilyst acquisition.

>>5 Health Care Stocks Setting Up to Break Out

The current short interest as a percentage of the float for AngioDynamics stands at 6.5%. That means that out of the 15.12 million shares in the tradable float, 1.63 million shares are sold short by the bears. This is a decent short interest on a stock with a very low float. If AngioDynamics can manage to beat earnings estimates and raise its forward guidance, then the stock could see a solid short-squeeze post-earnings.

From a technical perspective, ANGO is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the past three months, between $11.35 on the downside and around $12.63 on the upside. A move outside of that range post-earnings will likely setup the next major trend for ANGO.

If you’re in the bull camp on ANGO, then I would wait until after it reports earnings and look for long-biased trades if this stock can manage to trigger a break out its 50-day moving average of $12.16 a share, and then above some overhead resistance at $12.55 to $12.63 a share with high-volume. Look for volume on that move that registers near or above its three-month average action of 95,083 shares. If we get that move, then ANGO has a great chance of re-testing and possibly taking out its 200-day moving average of $13.29 a share.

I would simply avoid ANGO or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some major near-term support at $11.71 to $11.35 a share with high-volume. If we get that action, then ANGO should easily take out its next significant support level at $11.12 a share and possibly trend much lower.

Bank of the Ozarks

Another potential earnings short-squeeze trade is regional banking player Bank of the Ozarks (OZRK), which is set to release its numbers on Thursday after the market close. This firm operates as a bank holding company for Bank of the Ozarks that provides various retail and commercial banking services. Wall Street analysts, on average, expect Bank of the Ozarks to report revenue of $59.80 million on earnings of 52 cents per share.

This company has met or beat Wall Street estimates in the last four quarters. During the last quarter, Bank of the Ozarks reported earnings per share of 52 cents, topping Wall Street estimates of 51 cents per share. As we move closer to this bank’s earnings report, the stock is trending just two points off its 52-week high of $32.26 a share.

>>3 Regional Bank Value Plays From UBS

The current short interest as a percentage of the float for Bank of the Ozarks is rather high at 12.4%. That means that out of the 29.30 million shares in the tradable float, 3.65 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.5%, or by about 87,000 shares. If the bears are caught pressing too hard into this quarter, then we could easily see a big short-squeeze develop post-earnings.

From a technical perspective, OZRK is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock sold off from its April high of $32.13 to a recent low of $27.83 a share. After tagging that low, shares of OZRK have reversed its downtrend have now started to uptrend with the stock trading at around $30 a share. That move has now pushed OZRK within range of triggering a near-term breakout trade.

If you’re bullish on OZRK, then I would wait until after they report numbers and look for long-biased trades if this stock can manage to trigger a break out trade above some overheard resistance at $31.07 and then $32.13 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 189,490 shares. If we get that move, then OZRK will enter new 52-week-high territory and the stock could possibly hit $35 a share or higher.

I would simply avoid OZRK or look for short-biased trades if after earnings this stock fails to trigger that breakout and then takes out its 50-day moving average of $29.56 a share with high-volume. If we get that move, then OZRK will likely re-test and possibly take out its 200-day moving average of $28.36 a share if the bears hammer this stock down post-earnings.

Bank of the Ozarks shows up on a recent list of 20 Smaller Stocks With Growing Dividends.

NovaGold Resources

One potential earnings short-squeeze candidate in the gold and silver complex is NovaGold Resources (NG), which is set to release numbers on Thursday before the market open. This precious metals company is engaged in the exploration and development of mineral properties in North America. There are currently no Wall Street estimates available for NovaGold Resources.

If you’re looking for a heavily-shorted beaten-down stock heading into its earnings report, then make sure to take a hard look at shares of NovaGold Resources. This stock has been hammered by the sellers in 2012 with shares dropping by a whopping 30%. The current short interest as a percentage of the float for NovaGold is rather high at 10.8%. That means that out of the 187.35 million shares in the tradable float, 24.27 million shares are sold short by the bears.

>>6 Hated Stocks to Stay Away From

From a technical perspective, NG is currently below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a massive downtrend for the past six months, with shares sliding lower from over $9 a share to a recent low of $4.98 a share. During that sharp move lower, shares of NG have consistently made lower highs and lower lows, which is bearish technical action. That said, the stock has now formed a double bottom at $4.98 to $5.01 a share, and it’s now pushing within range of triggering a near-term breakout trade.

If you’re bullish on NG, then I would wait until after its report and look for long-biased trades if this stock can manage to trigger a break out above some overhead resistance at $5.87 to $6.24 a share with high-volume. Look for volume on that move that hits near or above its three-month average action of 3,487,700 shares. If we get that action, then NG could possibly re-test and take out its next significant overhead resistance levels at $6.72 to $7.30 a share. Shares of NG could even take out its 200-day moving average of $7.75 if the bulls gain full control of this stock post-earnings.

I would avoid NG or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some major near-term support at $5.50 a share with high-volume. If we get that move, then NG will likely re-test and possibly take out that double bottom support zone at $5.01 to 4.98 a share post-earnings.

iGate

One potential earnings short-squeeze trade in the software complex is iGate (IGTE), which is set to release numbers on Friday before the market open. This company is an outsourcing provider of integrated end-to-end offshore centric information technology and IT-enabled operations solutions and services. Wall Street analysts, on average, expect iGate to report revenue of $268.64 million on earnings of 29 cents per share.

This company has met or topped Wall Street estimates during the last four quarters. In the last quarter, iGate reported earnings per share of 38 cents, beating Wall Street estimates of 32 cents per share. The current short interest as a percentage of the float for iGate is worth mentioning at 5.6%. That means that out of the 25.87 million shares in the tradable float, 1.74 million shares are sold short by the bears.

>>4 Earnings Reports Bigger Than RIM's

From a technical perspective, IGTE is currently trading below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock recently sold off pretty hard from its May high of $19.97 a share to a recent low of $15.65 a share. After hitting that low, shares of IGTE have started to reverse its downtrend since the stock is now making higher lows and higher highs. This move has pushed the stock within range of triggering a near-term breakout trade.

If you’re in the bull camp on IGTE, then I would look for long-biased trades after earnings if this stock manages to trigger a near-term breakout above some overhead resistance at $17.90 to $18.43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 240,144 shares. If we get that move, then IGTE could easily re-test and possibly take out its May high of $19.97 a share post-earnings.

I would simply avoid IGTE 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 $16.27 a share with high volume. If we get that action, then IGTE could possibly re-test and take out its recent low of $15.65 a share if the bears smack this stock lower post-earnings. A high-volume move below $15.65 could mean that IGTE is setting up to re-test its next major support zone at $13.60 a share.

PDL BioPharma

My final earnings short-squeeze trade idea today is biotechnology and drugs player PDL BioPharma (PDLI), which is set to release numbers on Friday after the market close. This company is engaged in the management of antibody humanization patents and royalty assets, which consist of its Queen et al. patents and license agreements with various biotechnology and pharmaceutical companies. Wall Street analysts, on average, expect PDL BioPharma to report revenue of $118.54 million on earnings of 46 cents per share.

If you’re looking for a strong trending heavily-shorted biotech stock heading into its earnings report, then make sure to check out shares of PDL BioPharma. This stock has trended higher by over 13% during the last three months, and the stock is currently hitting new 52-week highs as I pen this. The current short interest as a percentage of the float for PDL BioPharma is rather high at 11.4%. That means that out of the 128.46 million shares in the tradable float, 15.86 million are sold short by the bears.

>>22 Biopharma Stocks With Breakout Potential in 2012

From a technical perspective, PDLI is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong during the last six months, with shares rising from a low of $5.87 to today’s intraday day high so far of $6.85 a share. During that uptrend, shares of PDLI have been making higher lows and higher highs, which is bullish technical price action.

If you’re bullish on PDLI, then I would wait until after they report and look for long-biased trades if this stock manages to print a new 52-week high with heavy volume. Look for volume on that move that registers near or above its three-month average action of 1,620,590 shares. If we get that move, then PDLI could easily continue its uptrend towards $8 to $10 a share if the bulls gain complete control of this stock post-earnings.

I would simply avoid PDLI or look for short-biased trades if it fails to print a new 52-week high and then moves back below some near-term support at $6.60 to $6.50 a share with heavy volume. If we get that action, then PDLI will setup to re-test and possibly take out its 50-day moving average of $6.38 a share if the bears annihilate this sock 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.

RELATED LINKS:

>>7 High-Volume Stocsk With Relative Strength
>>7 Dividend Stocks That Want to Pay You More Cash

>>5 Stocks Under $10 Set to Soar

Follow Stockpickr on Twitter and become a fan on Facebook.

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.