Stock Quotes in this Article: CHRS, CIEN, CPY, FNSR, JOSB, LTXC, ZLC, TFN

WINDERMERE, Fla. (Stockpickr) -- When short-sellers get caught short a stock that produces a strong earnings report, a tradable short-squeeze can develop, with bears rushing to cover their positions to avoid big losses. 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 timeframe 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. 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.

Sometimes however, the stock is going to be in such high demand that you will miss a lot of the move. That’s when it can be worth betting prior to the report – buy only if you have a very strong conviction that the stock is going to rip higher.

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    Here’s a look at a number of stocks that could experience big short squeezes when they report earnings this week.

    Ciena

    My first earnings short-squeeze candidate is Ciena (CIEN), which is set to report its results on Thursday before the open. This is a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic. Wall Street analysts, on average, expect Ciena to report a loss of 21 cents per share on revenue of $443.25 million.

    Miller Tabak has issued some comments on Ciena ahead of the quarter, saying they believe the Street has already factored in the company’s weak outlook and that any positive guidance will be positive for the stock. Miller Tabak has a buy rating on the stock with a $31 price target.

    Ciena missed Wall Street estimates badly last quarter after beating estimates in the prior two quarters. This stock has been absolutely destroyed during the past four months with shares falling from a May high of $28.78 a share to its current price of just over $12.50 a share. Any decent news and positive guidance is going to easily send this stock soaring since shares have been pounded down so much by the short-sellers.

    The current short interest as a percentage of the float for Ciena is a rather large 22.5%. That means that out of the 87.76 million shares in the tradable float, 21.32 million are sold short by the bears. This is a huge short interest and it’s been the right trade for the past few months. That said, if Ciena delivers what the bulls are looking for, then the bears could lock in some big profits and buy back the stock sparking a short-covering rally.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock has also been stuck in nasty downtrend since June where shares have been making lower highs and lower lows--also bearish. That said, the stock recently found some buying interest around $10.30 to $10.90 a share and has bounced above $12 a share.

    If you’re bullish on Ciena, I would buy this stock after they report earnings once it moves above $13.50 a share on big volume. Look for volume the following day that’s tracking close to or greater than its three-month average action of 6.8 million shares. I would then add to any long position if you see this stock move above its 50-day moving average of $15 a share. Target a run back towards $18 or possible higher if the bulls take over this trade after earnings.

    I would only short this name after they report if the stock drops below $10.94 to $10.33 a share on strong volume. I would expect Ciena to trade down toward $8.50 to $8 a share if the bears want to pound this name even lower than they have already done.

    Jos. A. Bank Clothiers

    Another potential earnings short-squeeze play is Jos. A. Bank Clothiers (JOSB), which is set to report results on Thursday before the market open. This is a designer, manufacturer, retailer and direct marketer of men’s tailored and casual clothing and accessories and is a retailer of tuxedo rental products. Wall Street analysts, on average, expect Jos. A. Bank Clothiers to report revenue of $209.72 million on earnings of 67 cents per share.

    This company has a checkered past of both beating and missing Wall Street estimates. During the last quarter, the company missed estimates by two cents and in the prior quarter it beat by four cents. This stock is an awesome name to trade because it’s known for making large moves post-earnings.

    The current short interest as a percentage of the float for Jos. A. Bank Clothiers is a very large 19.3%. That means that out of the 27.26 million shares in the tradable float, 5.27 million are sold short by the bears. This is a huge short interest on a stock with a low float available for trading. This type of situation can spark big short-covering rallies if the bulls get the news they’re looking for.

    From a technical standpoint, this stock is trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock also just formed a perfect double bottom chart pattern at around $40.50 a share this month and has since then rallied back toward its recent price of just under $47 a share.

    If you’re bullish on this name, I would wait until after they report and buy the stock once you see it trade above its 50-day moving average of $48.23 on strong volume. Look for volume the following day tracking in, close to or greater than its three-month average action of 462,000 shares. If it takes out the 50-day to the upside, then I would target a run back toward $52 to $53 a share or possibly higher.

    I would only short this stock after they report if you see it drop below $43 a share on strong volume. I would add to any short position if it then trades below $40.46 to $39.29 a share with volume. I would target a drop back towards its next significant prior support level at around $36.33 a share if the bear whack this name post-earnings. $20

    Zale

    If you’re looking for an earnings short-squeeze play in the specialty retail sector, then take a look at Zale (ZLC), which is set to release numbers on Wednesday before the market open. This company, through its subsidiaries, operates as a specialty retailer of fine jewelry in North America. Wall Street analysts, on average, expect Zale to report revenues of $360.4 million on a loss of $1.12 per share.

    This name is worth a strong look going into the quarter since one of its peer Tiffany beat Wall Street estimates huge last week after their second-quarter profits soared. Zale beat estimates last quarter after missing estimates in the previous quarter. Revenue has also been trending higher for the past two quarters by 14.5% and 7.6%.

    The current short interest as a percentage of the float for Zale is a notable 11.1%. That means that out of the 25.91 million shares in the tradable float, 3.54 million are sold short by the bears. This stock has a high short interest and a low tradable float. This type of situation can spark giant a giant short-squeeze if the bulls hear what they’re looking for.

    From a technical standpoint, this stock is currently trading below its 50-day moving average and above its 200-day moving average -- neutral, trendwise. The stock recently found some big buying support at around $3.50 a share, which also marks a level that buyers stepped into the stock back in late May.

    The way I would play this stock is to wait until after they report and then buy the stock if it trades above its 50-day moving average of $5.19 a share on big volume. Look for volume the following day that’s tracking in close to or greater than its three-month average action of 878,000 shares. I would then add to any long position if it trades above some more near-term overhead resistance at $6.19 a share. Target a run back toward $6.90 a share if the bulls can spark a short-squeeze.

    I would only short this name after they report if the stock falls through its 200-day moving average of $4.43 on big volume. I would target a drop toward $3.50 or possibly lower if the bears gain control of this name.

    Charming Shoppes

    One earnings short-squeeze play in the retail apparel complex is Charming Shoppes (CHRS), which is set to release numbers on Thursday before the open. This is a multi-brand, specialty apparel retailer with a market share in women’s plus-size specialty apparel. Wall Street analysts, on average, expect Charming Shoppers to report revenues of $500.22 million.

    This stock has been under tremendous selling pressure ahead of the quarter with shares falling form a recent high of $4.60 a share to a new 52-week low at $2.58 a share. The stock printed that new 52-week low just a few weeks ago, and has since then bounced back to its current price of just over $3 a share.

    The current short interest as a percentage of the float for Charming Shoppes is worth mentioning at 9.9%. That means that out of the 101.38 million shares in the tradable float, 11.38 million are sold short by the bears. It’s worth pointing out that the bears have been increasing their bets from the last reporting period by 22.2%, or by about 2,065,000 shares. This is a large increase in new short bets, so if Charming can deliver what the bulls are looking for, then we could see a big short-squeeze.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock has started to find some buying support ahead of the quarter at around $2.60 to $2.80 a share on decent volume.

    The way I would play this stock is to wait until after they have reported their numbers then buy the stock if it manages to trade above some near-term overhead resistance of $3.10 to $3.14 a share on solid volume. Look for volume the following day that’s tracking close to or greater than its three-month average action of 1.5 million shares. I would then add aggressively to any long position if the stock takes out its 200-day moving average of $30.36 a share. I would target a move back towards its 200-day moving average of $3.74 a share or possibly even higher.

    LTX-Credence

    One final earnings short squeeze play is LTX-Credence (LTXC), which is set to release numbers on Wednesday before the market open. This company provides focused, automated test equipment (ATE) solutions. It designs, manufactures, markets and services ATE solutions that address the test requirements of the wireless, computing, automotive and digital consumer market segments. Wall Street analysts, on average, expect LTX-Credence to report revenues of $66.67 million.

    This is another beaten down stock ahead of the quarter, since shares of LTX-Credence have dropped from its July high of $9.39 a share to a recent low of $5.45 a share. Even a decent quarter with just modest guidance could set off a sharp move to the upside in this oversold stock.

    The current short interest as a percentage of the float for LTX-Credence is worth mentioning at 4.1%. That means that out of the 48.68 million shares in the tradable float, 2.01 million are sold short by the bears. It’s also worth pointing out that the bears have also been increasing their bets from the last reporting period by 24%, or by about 388,000 shares. If the bears are caught leaning the wrong way into earnings, then this stock could see a solid short-covering rally.

    From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. That said, the stock has recently started making higher lows which could be an early indication that buyers are stepping back into this name ahead of the quarter. In fact, the stock has made three key lower highs in just the past few weeks.

    The way I would play this stock is to buy some shares after they release their results if you see it hold or trade above some key near-term overhead resistance at $6.50 a share on strong volume. Look for volume the following day that’s tracking in close to or greater than or its three-month average action of 521,000 shares. I would add to any long position if it then trades over $7.50 a share and target a run back towards $8.40 a share.

    I would only short this stock after they report if it trades below $5.45 a share on big volume. Add to any short position if it then loses $5 and target a run towards $4 if the bears gain full control of this name.

    To see more potential earnings short squeeze candidates like The Fresh Market (TFM), Finisar (FNSR) and CPI Corp. (CPY), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

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    -- Written by Roberto Pedone in Winderemere, Fla.

    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 stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.