Stock Quotes in this Article: BKS, GMCR, OVTI, TIF, SPLK

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.

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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 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.

Green Mountain Coffee

My first earnings short-squeeze trade idea is Green Mountain Coffee (GMCR), which is set to release numbers on Tuesday after the market close. This company is engaged in the specialty coffee and coffee maker businesses. Wall Street analysts, on average, expect Green Mountain Coffee to report revenue of $902.23 million on earnings of 48 cents per share.

The current short interest as a percentage of the float for Green Mountain Coffee is extremely high at 39.2%. That means that out of the 127.38 million shares in the tradable float, 49.71 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.8%, or by around 876,000 shares. If the bears are caught pressing their bets to hard into this quarter, then we could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, GMCR 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 uptrending for the last two months, with shares moving higher from a low of $21.33 to its recent high of $30.40 a share. During that uptrend, shares of GMCR have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed GMCR within range of triggering a near-term breakout trade post-earnings.

If you're bullish on GMCR, then I would wait until after its report and look for long-biased trades once this stock manages to break out above some near-term overhead resistance levels at $30.40 to $33.15 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 5,739,480 shares. If that breakout triggers, then GMCR will set up to re-fill some of its massive gap down zone from back in May that started near $50 a share.

I would simply avoid GMCR or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $28 a share with heavy volume. If we get that action, then GMCR will set up to re-test or possibly take out its 50-day moving average of $25.09 a share. Any move below its 50-day will set up GMCR to re-test some previous support at $23.28 a share.

Barnes & Noble

Another potential earnings short-squeeze play is Barnes & Noble (BKS), which is set to release its numbers on Thursday before the market open. This company is engaged in sale of trade books, mass market paperbacks, children's books, bargain books, magazines, gift, music and movies direct to customers. Wall Street analysts, on average, expect Barnes & Noble to report revenue of $1.88 billion on a loss of 11 cents per share.

If you're looking for a heavily-shorted stock that's been uptrending strong heading into its earnings report, then make sure to check out shares of Barnes & Noble. This stock has been on fire during the last three months, with shares up a whopping 30%.

The current short interest as a percentage of the float for Barnes & Noble is extremely high at 35.3%. That means that out of the 36.50 million shares in the tradable float, 13.09 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then this stock could explode higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, BKS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last three months, with shares rising from a low of $11.17 to its recent high of $17.10 a share. During that uptrend, shares of BKS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed BKS within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on BKS, then I would wait until after its report and look for long-biased trades once it manages to break out above some key overhead resistance levels at $17.10 to $17.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1,055,720 shares. If that breakout triggers, then BKS will set up to re-test or possibly take out its next major overhead resistance levels at $19.58 to $21 a share.

I would simply avoid BKS or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key support levels at $14.34 to $14.06 a share with heavy volume. If we get that action, then BKS will set up to trade down towards its next major support levels at around $12.50 to $12 a share.

OmniVision Technologies

One potential earnings short-squeeze candidate is OmniVision Technologies (OVTI), which is set to release numbers on Thursday after the market close. This company designs, develops and markets highly integrated semiconductor image-sensor devices. Wall Street analysts, on average, expect OmniVision Technologies to report revenue of $373.80 million on earnings of 30 cents per share.

If you're looking for a heavily-shorted stock that's been uptrending strongly so far in 2012, then make sure to check out shares of OVTI. This stock has been racking up gains on the year, with shares up around 24%. Shares of OVTI are currently trading just six points off its 52-week high of $21.11 a share ahead of its report.

The current short interest as a percentage of the float for OmniVision Technologies is rather high at 15.4%. That means that out of the 49.12 million shares in the tradable float, 8.17 million shares are sold short by the bears. If OmniVision can deliver the earnings news the bulls are looking for, then a decent short-squeeze could easily trigger post-earnings.

From a technical perspective, OVTI is currently trending above its 50-day moving average and right below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways for the past two months, with shares moving between $13.05 on the downside and $15.49 on the upside. A move outside of that range post-earnings will likely set up the next major trend for shares of OVTI.

If you're bullish on OVTI, then I would wait until after its report and look for long-biased trades as long as it's trending above $15.49 and its 200-day moving average of $15.63 a share with strong upside volume flows. Look for volume that registers near or above its three-month average volume of 1,756,040 shares. If we get that action, then OVTI will set up to re-test or possibly take out its next major overhead resistance levels at $17 to $17.85 a share. Any high-volume move above $17.85 will then put $19.64 to $21.11 into focus for OVTI.

I would simply avoid OVTI or look for short-biased trades if after earnings it fails to trigger that move, and then drops back below its 50-day moving average of $14.54 a share with heavy volume. If we get that move, then OVTI will set up to re-test or possibly take out its next major support level at $13.05 a share. Any move below $13.05 will then put $12 into focus for shares of OVTI.

Tiffany

Another earnings short-squeeze play is Tiffany (TIF), which is set to release numbers on Thursday before the market open. This company operates as a jeweler and specialty retailer. It also sells timepieces, sterling silver goods, china, crystal, stationery, fragrances, personal accessories and leather goods. Wall Street analysts, on average, expect Tiffany to report revenue of $859.11 million on earnings of 63 cents per share.

This company has seen an average of 16% growth in profit year-over-year for the last four quarters in a row. The biggest gain was seen during the third quarter of the last fiscal year when net income soared by 62.8%.

The current short interest as a percentage of the float for Tiffany is notable at 7.8%. That means that out of the 115.89 million shares in the tradable float, 9.82 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a short-covering rally if Tiffany can deliver the earnings news the bulls are looking for.

From a technical perspective, TIF 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 from a low of $49.48 to its recent high of $66.78 a share. During that uptrend, shares of TIF have been mostly making higher lows and higher highs, which is bullish technical price action.

If you're bullish on TIF, then I would wait until after its report and look for long-biased trades as long as it's trending above its 50-day moving average of $62.78 a share with strong upside volume flows. Look for volume on that move that hits near or above its three-month average action of 1,839,420 shares. If we get that action, then TIF will set up to re-test or possibly take out its next major overhead resistance level at $66.78 to $69.01 a share. Any high-volume move above those levels will then put $70 to $72 into focus for shares of TIF.

I would avoid TIF or look for short-biased trades if after earnings it fails to trigger that move, and then drops back below its 200-day moving average of $61.30 a share with heavy volume. If we get that move, then TIF will set up to re-test or possibly take out its next major support levels at $58.88 to $57.52 a share. Any high-volume move below those levels will then put $55 to $53 into focus for shares of TIF.

Splunk

My final earnings short-squeeze trade idea is Splunk (SPLK), which is set to release numbers on Thursday after the market close. This company provides an innovative software platform that enables organizations to gain real-time operational intelligence by harnessing the value of their data. Wall Street analysts, on average, expect Splunk to report revenue of $46.77 million on a loss of 2 cents per share.

If you're looking for a heavily-shorted stock that's been hit hard by the sellers heading into its report, then make sure to check out shares of Splunk. This stock has been a favorite target of the bears, with shares off by around 20% during the last six months.

The current short interest as a percentage of the float for Splunk is rather high at 11.2%. That means that out of the 54.18 million shares in the tradable float, 5.54 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.1%, or by about 510,000 shares. If the bears are caught pressing their bets too aggressively into this quarter, then this stock could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, SPLK is currently trending below its 50-day moving average, which is bearish. This stock has been downtrending badly over the last three months, with shares dropping from a high of $39.75 to its recent low of $26.10 a share. During that downtrend, shares of SPLK have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of SPLK have started to rebound of that recent low and move within range of triggering a near-term breakout trade.

If you're in the bull camp on SPLK, then I would wait until after its report and look for long-biased trades once it manages to take out some near-term overhead resistance levels at $29 to $29.23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1,038,110 shares. If that breakout triggers, then SPLK will set up to re-test or possibly take out its next major overhead resistance levels at $31.63 to $32.78 a share. Any high-volume move above those levels will then put $35 into focus for shares of SPLK.

I would simply avoid SPLK or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves back below some key near-term support levels at $27 to $26.10 a share with heavy volume. If we get that action, then SPLK will set up to re-test or possibly take out its 52-week low of $25.15 a share. Any move below that level should be considered bearish price action, since it's also the all-time low for shares of SPLK.

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 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.