Stock Quotes in this Article: AA, APOL, GBX, LNN, SCHN

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.

Lindsay

My first earnings short-squeeze play is Lindsay (LNN), which is set to release numbers on Tuesday before the market open. This company is a designer and manufacturer of self-propelled center pivot and lateral move irrigation systems which are used in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor. Wall Street analysts, on average, expect Lindsay to report revenue of $131.98 million on earnings of 75 cents per share.

The current short interest as a percentage of the float for Lindsay is rather high at 12.4%. That means that out of the 12.43 million shares in the tradable float, 1.54 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.2%, or by about 47,000 shares. If the bears are caught leaning too hard into this quarter, then we could see a large short-squeeze develop post-earnings.

From a technical perspective, LNN 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 four months, with shares soaring from a low of $64.36 to its recent high of $84.17 a share. During that uptrend, shares of LNN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed LNN within range of triggering a breakout trade post-earnings.

If you're bullish on LNN, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $84.17 to $84.98 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 120,295 shares. If that breakout hits, then LNN will set up to enter new 3-year high territory, which is bullish technical price action. Some possible upside targets off that breakout are $90 to $95 a share.

I would simply avoid LNN or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support levels at $76.88 to $76 a share with heavy volume. If we get that move, then LNN will set up to re-test or possibly take out its next major support levels at $73.86 to $71.98 a share.

Apollo Group

Another potential earnings short-squeeze trade is Apollo Group (APOL), which is set to release its numbers on Tuesday after the market close. This company offers distinctive educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels. Wall Street analysts, on average, expect Apollo Group to report revenue of $1.03 billion on earnings of 90 cents per share.

This company has topped Wall Street estimates for the last four quarters in a row and it's coming off a quarter where it beat estimates by 3 cents, after reporting net income of 52 cents per share versus a mean estimate of 49 cents per share.

The current short interest as a percentage of the float for Apollo Group stands is very high at 14.7%. That means that out of the 98.93 million shares in the tradable float, 14.37 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.

From a technical perspective, APOL is currently trending above 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 up from a low of $18.36 to its recent high of $22.48 a share. During that uptrend, shares of APOL have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed APOL within range of triggering a near-term breakout trade.

If you're in the bull camp on APOL, 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 $22.48 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2,819,510 shares. If that breakout triggers, then APOL will set up re-test or possibly take out its gap down day high from last October that sits just above $25 a share.

I would simply avoid APOL 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 $20.13 to $19.91 a share with high volume. If we get that move, then APOL will set up to re-test or possibly take out its next major support levels at $19 to $18.36 a share. Any move below $18.36 would then push APOL into new 52-week low territory, which is bearish technical price action.

Schnitzer Steel Industries

One potential earnings short-squeeze trade idea is Schnitzer Steel Industries (SCHN), which is set to release numbers on Tuesday before the market open. This company is a recycler of ferrous and nonferrous scrap metal, a recycler of used and salvaged vehicles and a manufacturer of finished steel products. Wall Street analysts, on average, expect Schnitzer Steel Industries to report revenue of $616.80 million on earnings of 1 cent per share.

This company has beaten Wall Street estimates for the last three quarters in a row. During the last quarter, this company reported a profit of 10 cents per share versus a mean estimate of one cent per share.

The current short interest as a percentage of the float for Schnitzer Steel Industries is notable at 8.5%. That means that out of the 25.25 million shares in the tradable float, 2.05 million shares are sold short by the bears. If this company can give the bulls the earnings news they're looking for, then we could get see this stock rip higher post-earnings.

From a technical perspective, SCHN 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 $25.99 to its recent high of $32.71 a share. During that uptrend, shares of SCHN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed SCHN within range of triggering a major breakout trade post-earnings.

If you're bullish on SCHN, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $32.71 to $32.74 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 312,995 shares. If that breakout triggers, then SCHN will set up to re-test or possibly take out its next major overhead resistance levels at $36 to $38 a share.

I would avoid SCHN 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 $31 to $29.05 a share with high volume. If we get that move, then SCHN will set up to re-test or possibly take out its next major support levels at $28 to $27.50 a share.

Greenbrier Companies

Another earnings short-squeeze play is Greenbrier Companies (GBX), which is set to release numbers on Wednesday before the market open. This company designs, manufactures and markets railroad freight car equipment in North America and Europe. Wall Street analysts, on average, expect Greenbrier Companies to report revenue of $400.42 million on earnings of 31 cents per share.

This stock recently sold off hard from its high of $21.63 to its recent low of $15.41 a share with heavy downside volume. Following that move, shares of GBX have started to stabilize at around $16 a share ahead of its quarterly report.

The current short interest as a percentage of the float for Greenbrier Companies is pretty high at 12.5%. That means that out of the 22.28 million shares in the tradable float, 3.05 million shares are sold short by the bears. This is a high short interest on a stock with a very low tradable float. Any bullish earnings news could spark a monster short-squeeze for GBX post-earnings.

From a technical perspective, GBX 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 uptrending slightly since its recent selloff, with shares moving from a low of $15.41 to its recent high of $16.79 a share. That move has started to push 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 its 200-day moving average at $16.49 and its 50-day moving average of $17.19 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 745,575 shares. If that breakout triggers, then GBX will set up to re-test or possibly take out its next major overhead resistance levels at $20 to $21.63 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 some key near-term support at $15.41 a share with heavy volume. If we get that move, then GBX will set up to re-fill its previous gap from November that started around $13.50 a share.

Alcoa

My final earnings short-squeeze candidate is Alcoa (AA), which is set to release numbers on Tuesday after the market close. This company is engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation in all major aspects of the industry: technology, mining, refining. Wall Street analysts, on average, expect Alcoa to report revenue of $5.61 billion on earnings of 6 cents per share.

This company beat Wall Street estimates the last quarter after reporting in line estimates during the prior quarter. During the third quarter, it reported a profit of 3 cents per share versus Wall Street estimates of 0 cents per share. Two quarters ago, it reported a profit of 6 cents per share.

The current short interest as a percentage of the float for Alcoa sits at 6.8%. That means that out of the 1.07 billion shares in the tradable float, 72.01 million 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-covering rally post-earnings.

From a technical perspective, AA 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 from a low of $7.98 to its recent high of $9.29 a share. During that uptrend, shares of AA have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed AA within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on AA, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $9.29 to $9.31 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 16,393,100 shares. If that breakout hits, then AA will set up to re-test or possibly take out its next major overhead resistance levels at $9.90 to $10.64 a share.

I would simply avoid AA or look for short-biased trades if after its report it fails to trigger that breakout, and then drops back below both its 200-day at $8.83 and its 50-day at $8.57 a share with heavy volume. If we get that move, then AA will set up to re-test or possibly take out its next major support levels at $8.20 to $7.98 a share. Any subsequent move below $7.91 a share would be very bearish, since that's a major support level that's marked the stock's 3-year low.

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.