Stock Quotes in this Article: BRLI, FNSR, LULU, TITN, FRAN

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.

Francesca's

My first earnings short-squeeze play is Francesca's (FRAN), which is set to release numbers on Wednesday before the market open. This company operates a chain of retail boutiques in the U.S. The company's retail boutiques offer apparel, jewelry, accessories, and gifts to female customers. Wall Street analysts, on average, expect Francesca's to report revenue of $71.24 million on earnings of 22 cents per share.

Just this morning, Jefferies upgraded shares of Francesca's to buy from hold and slapped a $38 price target on the stock. The firm said that Francesca's is looking good for the holidays. Also, RBC Capital recently said that the weakness in FRAN was mostly due to concerns regarding the retirement of its young CEO. The firm remains upbeat about the new CEO and believes that the company's business trends have probably continued to be good. RBC Capital has an outperform rating and $42 price target on the stock.

The current short interest as a percentage of the float for Francesca's is extremely high at 35.8%. That means that out of the 34.78 million shares in the tradable float, 12.09 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 22.8%, or by about 2.24 million shares. If the bears are caught pressing their bets into this quarter, then we could easily see a large short-squeeze get set off post-earnings.

From a technical perspective, FRAN is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last few weeks, with shares moving between $24.95 on the downside and $27.21 on the upside. A move outside of that range post-earnings will likely set up shares of FRAN for its next major trend.

If you're bullish on FRAN, 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 $27.21 to its 200-day at $28.40 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1,214,230 shares. If we get that breakout, then FRAN will set up to re-test or possibly take out its next major overhead resistance levels at $30.94 to $32.04 a share. Any move above $32.04 will then put $34 into focus for shares of FRAN.

I would simply avoid FRAN 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 $24.95 a share with high volume. If we get that move, then FRAN will set up to re-test or possibly take out its next major support level at $23.76 a share. Any move below $23.76 will then put $22 to $20.93 into focus for shares of FRAN.

Bio-Reference Laboratories

Another potential earnings short-squeeze trade is Bio-Reference Laboratories (BRLI) which is set to release its numbers on Thursday before the market open. This company is engaged in offering testing, information and related services to physician offices, clinics, hospitals, employers and governmental units. Wall Street analysts, on average, expect Bio-Reference Laboratories to report revenue of $175.64 million on earnings of 46 cents per share.

During the last quarter, Bio-Reference Laboratories reported revenue of $172.3 million and GAAP sales were 16% higher than the prior-year quarter's $148 million. The company's GAAP EPS for the last quarter was 25% higher than the prior-year quarter's 36 cents per share.

The current short interest as a percentage of the float for Bio-Reference Laboratories is extremely high at 36.8%. That means that out of the 24.49 million shares in the tradable float, 9.01 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.5%, or by about 625,000 shares. If the bears are caught leaning too hard into this quarter, then shares of BRLI could explode higher post-earnings.

From a technical perspective, BRLI 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 downtrending for the last two months, with shares dropping from a high of $32.86 to a recent low of $23.66 a share. During that move, shares of BRLI were consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of BRLI have started to rebound off that $23.66 low and move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on BRLI, 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 $27.19 to $29.24 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 316,698 shares. If that breakout hits, then BRLI will set up to re-test or possibly take out its next major overhead resistance levels at $32 to $32.86 a share. Any move above $32.86 a share will then push shares of BRLI into new 52-week high territory, which is bullish technical price action.

I would simply avoid BRLI 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 $25.24 a share with heavy volume. If we get that action, then BRLI will set up to re-test or possibly take out its next major support levels at $24.82 to $23.66 a share. Any move below $23.66 will then put $20 a share into for shares of BRLI.

Titan Machinery

One potential earnings short-squeeze candidate is Titan Machinery (TITN), which is set to release numbers on Thursday before the market open. This company owns and operates a network of service agricultural and construction equipment stores in the U.S. and Europe. Wall Street analysts, on average, expect Titan Machinery to report revenue of $512.76 million on earnings of 65 cents per share.

If you're looking for a heavily-shorted stock that's been crushed by the bears heading into its quarter, then make sure to check out shares of Titan Machinery. This stock has been hammered by the sellers during the last six months, with shares off by 22%.

The current short interest as a percentage of the float for Titan Machinery is extremely high at 29.1%. That means that out of the 16.84 million shares in the tradable float, 4.98 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.2%, or by around 458,000 shares. If the bears are caught pressing their bets too hard into this quarter, then we could easily see an explosive short-squeeze hit the tape post-earnings.

From a technical perspective, TITN is currently trending just above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending modestly for the last three months, with shares moving higher from a low of $19.07 to a recent high of $23.95 a share. During that uptrend, shares of TITN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TITN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on TITN, then I would wait until after its report and look for long-biased trades once this stock breaks out above some near-term overhead resistance levels at $23.20 to $23.95 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 709,290 shares. If that breakout triggers, then TITN will set up to re-test or possibly take out its next major overhead resistance levels at $25.69 to its 200-day at $26.67 a share. Any high-volume move back above its 200-day will then put $29.11 to $30.32 into focus for shares of TITN.

I would avoid TITN 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 its 50-day of $21.53 a share with high volume. If we get that action, then TITN will set up to re-test or possibly take out its next major support levels at $19.77 to $19.07 a share. Any move below $19.07 will then push TITN into new 52-week low territory, which is bearish technical price action.

Finisar

Another earnings short-squeeze trade idea is Finisar (FNSR), which is set to release numbers on Wednesday after the market close. This company is a provider of optical subsystems and components that are used in data communication and telecommunication applications. Wall Street analysts, on average, expect Finisar to report revenue of $231.85 million on earnings of 14 cents per share.

On Monday, Needham upgraded its rating on Finisar from hold to buy and changed its price target to $18 a share. This company missed Wall Street estimates the last quarter after being in line with estimates in the prior quarter. During the first quarter, it reported net income of 2 cents per share versus Wall Street estimates of 9 cents per share.

The current short interest as a percentage of the float for Finisar is very high at 14.6%. That means that out of the 91.45 million shares in the tradable float, 13.21 million shares are sold short by the bears.

From a technical perspective, FNSR is currently trending just above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last month, with shares soaring from a low of $10.95 to a high of $14.15 a share. During that uptrend, shares of FNSR have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed FNSR within range of triggering a near-term breakout trade post-earnings.

If you're bullish on FNSR, 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 $14.15 to its 200-day at $15.05 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2,553,520 shares. If that breakout hits, then FNSR will set up to re-test or possibly take out its next major overhead resistance levels at $17.10 to $19 a share.

I would avoid FNSR or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day at $12.81 a share with heavy volume. If we get that action, then FNSR will set up to re-test or possibly take out its next major support level at $10.95 a share. Any move below $10.95 would then push shares of FNSR into new 52-week low territory, which is bearish technical price action.

Lululemon Athletica

My final earnings short-squeeze play is Lululemon Athletica (LULU), which is set to release numbers on Thursday before the market open. This company is engaged in the design, manufacture and distribution of healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned and operated retail stores, independent franchises and a network of wholesale accounts. Wall Street analysts, on average, expect Lululemon Athletica to report revenue of $305.05 million on earnings of 37 cents per share.

Just this morning, Canaccord Genuity initiated coverage on Lululemon Athletica with a price target of $91 ahead of its earnings report. The firm said the company is evolving from an athletic brand with its roots in yoga to a lifestyle brand that is marrying form and function.

The current short interest as a percentage of the float for Lululemon Athletica is rather high at 15.2%. That means that out of the 101.18 million shares in the tradable float, 14.65 million shares are sold short by the bears. If the company can deliver the earnings news the bulls are looking for, then we could easily see a decent short-covering rally post-earnings.

From a technical perspective, LULU 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 month, with shares moving between $65.09 on the downside and $73.70 on the upside. A move outside of that range post-earnings will likely set up the next major trend for shares of LULU.

If you're in the bull camp on LULU, then I would wait until after its report and look for long-biased trades once it breaks out above some near-term overhead resistance at $73.70 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2,047,660 shares. If that breakout triggers, then LULU will set up to re-test or possibly take out its next major overhead resistance levels at $76.34 to $77.09 a share. Any high-volume move above those levels will then put $78.96 into focus for shares of LULU.

I would simply avoid LULU or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 200-day at $68.59 a share with heavy volume. If we get that action, then LULU will set up to re-test or possibly take out its next major support levels at $66 to $65.09 a share. Any move below $65.09 would then put $64 to $62 into focus for shares of LULU.

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.