Stock Quotes in this Article: CERE, PSMT, SNX, SVU, XRTX

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.

Supervalu

My first earnings short-squeeze play is Supervalu (SVU), which is set to release numbers on Thursday before the market open. This company operates as a grocery retailer in the United States. Wall Street analysts, on average, expect Supervalu to report revenue of $7.90 billion on earnings of 6 cents per share.

This company has missed Wall Street estimates in the last two quarters. During the second quarter, it missed estimates by 12 cents per share and in the first quarter it missed estimates by 19 cents per share. Supervalu has registered four straight quarters of revenue decreases going into this quarter.

The current short interest as a percentage of the float for Supervalu is extremely high at 40.5%. That means that out of the 212.07 million shares in the tradable float, 85.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.6%, or by about 1.37 million shares. If the bears are caught leaning too hard into this quarter, then we could see a short-covering rally develop post-earnings.

From a technical perspective, SVU is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways during the last two months, with shares moving between $3.30 on the upside and $2.34 on the downside. A move outside of that range post-earnings will likely lead to the next major trend for shares of SVU.

If you're bullish on SVU, 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 $3.15 to $3.30 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 6,493,510 shares. If that breakout triggers, then SVU will set up to re-fill its previous gap down zone from last July that started above $5 a share.

I would simply avoid SVU 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 $2.73 a share with heavy volume. If we get that move, then SVU will set up to re-test or possibly take out its next major support level at $2.34 a share.

Synnex

Another potential earnings short-squeeze trade is Synnex (SNX), which is set to release its numbers on Thursday after the market close. This is a business process services company offering a comprehensive range of services to resellers, retailers, and original equipment manufacturers worldwide. Wall Street analysts, on average, expect Synnex to report revenue of $2.76 billion on earnings of $1.04 per share.

The current short interest as a percentage of the float for Synnex stands is pretty high at 11.9%. That means that out of the 25.98 million shares in the tradable float, 3.13 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then we could easily see a solid short-squeeze develop post-earnings.

From a technical perspective, SNX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly for the last two months, with shares moving higher from a low of $30.70 to its recent high of $35.81 a share. During that uptrend, shares of SNX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed SNX within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on SNX, 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 $35.81 to $35.88 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 133,982 shares. If that breakout hits, then SNX will set up re-test or possibly take out its next major overhead resistance level at $38.80 a share.

I would simply avoid SNX or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 200-day moving average of $34.32 a share with high volume. If we get that move, then SNX will set up to re-test or possibly take out its next major support levels at $33.42 to its 50-day moving average at $33.01 a share.

Xyratex

One potential earnings short-squeeze candidate is Xyratex (XRTX), which is set to release numbers on Thursday after the market close. This company is a provider of modular enterprise-class data storage solutions and storage process technology. Wall Street analysts, on average, expect Xyratex to report revenue of $255.18 million on a loss of 32 cent per share.

If you're looking for a short-squeeze play that's been beaten down by the bears heading into its earnings report, then make sure to check out shares of Xyratex. This stock has been clobbered by the sellers during the last six months, with shares off by 38%.

The current short interest as a percentage of the float for Xyratex is notable at 5.6%. That means that out of the 20.12 million shares in the tradable float, 1.13 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 the bulls get the earnings news they're looking for.

From a technical perspective, XRTX is currently trending above both its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently sold off from its high at $9.23 a share right to its 50-day moving average at $7.52 a share. If XRTX can hold above its 50-day moving average, then we could see a near-term breakout trade trigger post-earnings.

If you're bullish on XRTX, 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 $8.70 to $9.23 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 391,311 shares. If that breakout triggers, then XRTX will set up to re-test or possibly take out its next major overhead resistance levels at $9.85 to $10.23 a share. Any move above $10.23 would then out $11.01 to $11.92 into focus for shares of XRTX.

I would avoid XRTX 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 $7.52 to $7.40 a share with high volume. If we get that move, then XRTX will set up to re-test or possibly take out its next major support levels at $7.16 to $6.50 a share.

Pricesmart

Another earnings short-squeeze trade idea is Pricesmart (PSMT), which is set to release numbers on Wednesday after the market close. This company is engaged in the ownership and operation of membership shopping warehouse clubs under the trade name 'PriceSmart' in Central America and the Caribbean. Wall Street analysts, on average, expect Pricesmart to report revenue of $535.38 million on earnings of 62 cents per share.

The average Wall Street estimate for Pricesmart is predicting that revenue will increase by 15.1% and EPS will expand by 29.8% for this quarter. During the last quarter, EPS was 58 cents per share, which was 38% higher than the prior-year quarter's 42 cents per share.

The current short interest as a percentage of the float for Pricesmart is rather high at 10.2%. That means that out of the 20.56 million shares in the tradable float, 1.90 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2%, or by about 37,000 shares. If the bears are caught pressing their bets into this quarter, then we could see a sizable short-squeeze develop post-earnings.

From a technical perspective, PSMT 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 trending sideways for the last two months, with shares moving between $70.09 on the downside and $79.93 on the upside. A move outside of that range post-earnings will likely lead to the next major trend for shares of PSMT.

If you're bullish on PSMT, 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 $79.24 to $79.93 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 123,785 shares. If that breakout triggers, then PSMT will set up to re-test or possibly take out its next major overhead resistance levels at $83.84 to $85.67 a share.

I would avoid PSMT 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 $73.58 to $73.40 a share with heavy volume. If we get that move, then PSMT will set up to re-test or possibly take out its next major support level at $70.09 a share.

Ceres

My final earnings short-squeeze play is Ceres (CERE), which is set to release numbers on Thursday after the market close. This is an agricultural biotechnology company selling seeds to produce renewable biomass feedstocks that can enable the large-scale replacement of petroleum and other fossil fuels. Wall Street analysts, on average, expect Ceres to report revenue of $1.33 million on a loss of 32 cents per share.

The current short interest as a percentage of the float for Ceres sits at 3.8%. That means that out of the 17.34 million shares in the tradable float, 376,000 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-squeeze if Ceres can deliver the earnings news the bulls are looking for.

From a technical perspective, CERE is currently trending above both its 50-day moving average and well 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 $3.43 to its recent high of $4.68 a share. During that uptrend, shares of CERE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed CERE within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on CERE, 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 $4.68 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 48,256 shares. If that breakout hits, then CERE will set up to re-test or possibly take out its next major overhead resistance levels at $5.50 to $5.62 a share. Any move above $5.62 will then put $6.16 to $7 into focus for shares of CERE.

I would simply avoid CERE if after its report it fails to trigger that breakout, and then drops back below some key near-term support levels at $4.07 to $4 a share with heavy volume. If we get that action, then CERE will set up to re-test or possibly take out its next major support levels at $3.73 to $3.61 a share. Any move below $3.43 would then push CERE 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 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.