Stock Quotes in this Article: AEO, EXPR, PVH, TFM, BV

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.

Fresh Market

My first earnings short-squeeze play is Fresh Market (TFM), which is set to release numbers on Wednesday before the market open. This is a specialty retailer focused on creating an extraordinary food shopping experience for its customers. It offers fresh, carefully selected, high-quality food products focused on perishable categories. Wall Street analysts, on average, expect Fresh Market to report revenue of $318.60 million on earnings of 26 cents per share.

This company is hoping to beat Wall Street estimates for the third quarter in a row. During the last quarter, it beat Wall Street estimates after reporting a profit of 28 cents per share versus the mean estimate of 27 cents per share. During the prior quarter, Fresh Market reported a net income of 40 cents per share. This company is also looking to maintain its trend of double-digit revenue growth for the fifth straight quarter in a row. Fresh Market has averaged year-over-year growth of 17.3% over the last four quarters.

The current short interest as a percentage of the float for Fresh Market is pretty high at 9.9%. That means that out of the 40.32 million shares in the tradable float, 3.71 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.7%, or by just over 165,000 shares. If the bears are caught leaning too hard into this quarter, then we could easily see a large short-squeeze develop post-earnings.

From a technical perspective, TFM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month and change, with shares moving higher from $55.34 to $62.48 a share. During that uptrend, shares of TFM have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed TFM within range of triggering a near-term breakout trade post-earnings.

If you're bullish on TFM, 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 at $62.48 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 440,760 shares. If that breakout triggers, then CRM will set up to re-test or possibly take out its next major overhead resistance level at $65.69 a share. Any move above $65.69 would then push TFM into new 52-week high territory, which is bullish technical price action.

I would simply avoid TFM 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 $60 a share with heavy volume. If we get that action, then TFM will set up to re-test or possibly take out its 50-day moving average of $58.70 a share. Any high-volume move below its 50-day and TFM will set up to re-test its next major support levels at $55.34 to its 200-day at $53.84 a share.

Bazaarvoice

Another potential earnings short-squeeze trade is Bazaarvoice (BV), which is set to release its numbers on Monday after the market close. This company provides social commerce solutions that help its clients capture, display & analyze online word of mouth, such as consumer-generated ratings & reviews, questions & answers, stories, recommendations, photographs, videos & other contents. Wall Street analysts, on average, expect Bazaarvoice to report revenue of $38.53 million on a loss of 10 cents per share.

If you're looking for a beaten-down heavily-shorted stock heading into its earnings report, then make sure to check out shares of Bazaarvoice. This stock has been hammered by the sellers during the last six months, with shares down by over 30%. That move has pushed this stock just one point above its 52-week low of $9.86 a share ahead of its report.

The current short interest as a percentage of the float for Bazaarvoice is very high at 14.8%. That means that out of the 33.77 million shares in the tradable float, 5.81 million shares are sold short by the bears. This stock has a relatively low float and a high short interest. Any bullish earnings news could easily set this stock off on a sizeable short-squeeze post-earnings.

From a technical perspective, BV is currently trending below its 50-day moving average, which is bearish. This stock has been downtrending badly for the last six months, with shares dropping from $20 to its recent low of $9.86 a share. During that downtrend, shares of BV have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of BV have started to stabilize above $10 a share and it's moving within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on BV, then I would wait until after its report and look for long-biased trades once it manages to break out above some near-term overhead resistance at $11.04 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 572,592 shares. If that breakout triggers, then look for BV to spike substantially higher back towards its 50-day moving average of $13.38 a share or much higher.

I would simply avoid BV 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 $10.31 to $9.86 a share with heavy volume. If we get that action, then TFM will set up to enter new 52-week low territory, which is bearish technical price action. Some possible downside targets are $9 to $8 a share or lower.

PVH

One potential earnings short-squeeze candidate is PVH (PVH), which is set to release numbers on Tuesday after the market close. This is an apparel company, which designs and markets branded dress shirts, neckwear, sportswear and, to a lesser extent, footwear and other related products. Wall Street analysts, on average, expect PVH to report revenue of $1.64 billion on earnings of $2.30 per share.

The current short interest as a percentage of the float for PVH sits at 1.6%. That means that out of the 66.88 million shares in the tradable float, 1.10 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.8%, or by 60,000 shares. If the bears are caught pressing their bets into this quarter, then we could easily see a decent short-squeeze develop post-earnings.

From a technical perspective, PVH is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently gapped up big from around $90 to $115.82 a share on heavy upside volume. Since that move, shares of PVH have started to trend sideways between $106 and $115 a share. A move outside of that sideways trading pattern post-earnings will likely set up the next major trend for shares of PVH.
If you're bullish on PVH, then I would wait until after its report and look for long-biased trades once it manages to break out above some near-term overhead resistance levels at $115 to $115.82 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 944,148 shares. If that breakout triggers, then PVH will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $120 to $130 a share or higher.

I would avoid PVH 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 $106 a share with high volume. If we get that action, then PVH will set up to re-test or possibly take out its 50-day moving average of $99.95 a share. Any move below $99.95 will then put PVH into risk of filling some of its previous gap down towards $90 a share.

American Eagle Outfitters

Another earnings short-squeeze candidate is American Eagle Outfitters (AEO), which is set to release numbers on Wednesday before the market open. This is a specialty retailer that operates more than 1,000 retail stores in the U.S. and Canada, and online at ae.com. Wall Street analysts, on average, expect American Eagle Outfitters to report revenue of $872.95 million on earnings of 39 cents per share.

Just recently, BMO downgraded shares of American Eagle Outfitters from outperform to market perform with a price target of $20 due to a lack of catalysts to drive the price higher in the near term.

The current short interest as a percentage of the float for American Eagle Outfitters is notable at 8%. That means that out of the 172.88 million shares in the tradable float, 13.66 million shares are sold short by the bears. If American Eagle Outfitters delivers the earnings news the bulls are looking for, then this stock could explode higher post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, AEO is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been downtrending a bit for the last two months, with shares falling from a high of $22.97 to its recent low of $18.31 a share. During that downtrend, shares of AEO have been consistently making lower highs and lower lows, which is bearish technical price action. That said, AEO has now started to bounce right off its 200-day moving average of $18.35 a share and its quickly moving within range of triggering a near-term breakout trade.

If you're bullish on AEO, 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 levels at $20.46 to its 50-day at $21.04 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3,826,510 shares. If that breakout hits, then AEO will set up to re-test or possibly take out its next major overhead resistance level at $22.97 to $23.94 a share.

I would avoid AEO 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 $18.35 to $18.31 a share with heavy volume. If we get that action, then AEO will set up to re-test or possibly take out its next major support levels at $18.09 to $17.04 a share. Any move below $17.04 a share will then put $15 into focus for shares of AEO.

Express

My final earnings short-squeeze play is Express (EXPR), which is set to release numbers on Wednesday before the market open. This is a specialty apparel and accessories retailer of women's and men's merchandise, targeting the 20 to 30 year old customer. Wall Street analysts, on average, expect Express to report revenue of $468.80 million on earnings of 17 cents per share.

On Friday, UBS analyst Roxanne Meyers said that if she had to sum up who the early morning Black Friday winners were that saw the most store traffic, it would be Express, Victoria's Secret (LTD), Urban Outfitters (URBN) and American Eagle Outfitters.

The current short interest as a percentage of the float for Express is rather high at 8.4%. That means that out of the 83.30 million shares in the tradable float, 7.17 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.6%, or by about 377,000 shares. If the bears are caught pressing their bets too aggressively into this quarter, then this stock could easily explode higher post-earnings.

From a technical perspective, EXPR 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 trending sideways for the last two months, with shares moving between $10.47 on the downside and $12.79 on the upside. That sideways pattern followed a big gap down in price in October from $15 to $11.50 a share with high volume. Shares of EXPR are now starting to move into that gap and move back above its 50-day moving average of $12.55 a share.

If you're in the bull camp on EXPR, then I would wait until after its report and look for long-biased trades in this stock as long as its trending above its 50-day at $12.55 and above its recent high of $12.79 a share with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average action of 1,907,710 shares as bullish. If EXPR can maintain that trend, then this stock will set up to re-fill some of that previous gap back towards $15 a share or higher.

I would simply avoid EXPR or look for short-biased trades if after earnings it fails to hold its trend into the gap, and then moves back below some key near-term support levels at $11.50 to $10.47 a share with heavy volume. If we get that action, then EXPR will set up to enter new 52-week low territory, which is bearish technical price action. Some possible downside targets are $9 to $8 a share.

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.