Stock Quotes in this Article: AVNR, CASY, CIEN, PIR, JOY

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.

Casey's General Stores

My first earnings short-squeeze trade idea is Casey's General Stores (CASY), which is set to release numbers on Monday after the market close. This company operates convenience stores under the name 'Casey's General Store', 'HandiMart' and 'Just Diesel' in nine Midwestern states, mainly Iowa, Missouri, and Illinois. Wall Street analysts, on average, expect Casey's General Stores to report revenue of $1.91 billion on earnings of 85 cents per share.

The current short interest as a percentage of the float for Casey's General Stores is notable at 4.7%. That means that out of the 38.03 million shares in the tradable float, 1.79 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.2%, or by about 120,000 shares. If the bears are caught pressing their bets into the quarter, then we could easily see a decent short-squeeze develop post-earnings.

From a technical perspective, CASY is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last three months, with shares dropping from its high of $59.95 to a recent low of $46.15 a share. During that move, shares of CASY have been mostly making lower highs and lower lows, which is bearish technical price action. That said, shares of CASY have recently started to rebound off that $46.15 low and move within range of triggering a near-term breakout trade.
If you're bullish on CASY, 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 $51 to $51.64 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 299,797 shares. If we get that breakout, then CASY will set up to re-test or possibly take out its 200-day moving average of $54.96 a share.

I would simply avoid CASY 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 $48 a share with high volume. If we get that move, then CASY will set up to re-test or possibly take out its next major support level at $46.15 a share. Any move below $46.15 a share will then push shares of CASY into 52-week low territory, which is bearish technical price action.

Pier 1 Imports

Another potential earnings short-squeeze play is Pier 1 Imports (PIR) which is set to release its numbers on Thursday before the market open. This company is a global importer and operates as a specialty retailer of imported decorative home furnishings and gifts in the North America. Wall Street analysts, on average, expect Pier 1 Imports to report revenue of $416.56 million on earnings of 24 cents per share.

Just recently, this company said it expects profit in its fiscal third quarter to rise from a year ago despite store closings after Superstorm Sandy, as more customers visited stores and also spent more. Pier 1 Imports said that revenue at stores open at least a year jumped 7.9% in the three months through Nov. 24, or more than 9% when stripping out Sandy's effect.

The current short interest as a percentage of the float for Pier 1 Imports is pretty high at 8%. That means that out of the 90.85 million shares in the tradable float, 7.32 million shares are sold short by the bears. This is more than enough shorts involved in the stock to spark a sizeable short-squeeze if the bulls get the earnings news they're looking for.

From a technical perspective, PIR is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last five months, with shares moving from a low of $15.19 to its recent high of $21.24 a share. During that uptrend, shares of PIR have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed PIR within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on PIR, 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 $20.05 to $20.25 a share, and then above more overhead resistance at $21.24 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1,377,210 shares. If that breakout triggers, then PIR will set up to re-test or possibly take out its next major overhead resistance level at $25 a share. Keep in mind that any move above $21.24 will also push PIR into new 52-week high territory, which is bullish technical price action.

I would simply avoid PIR 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 $18.79 to $18.05 a share with heavy volume. If we get that move, then PIR will set up to re-test or possibly take out its next major support level at its 200-day moving average of $17.78 a share.

Ciena

One potential earnings short-squeeze candidate is Ciena (CIEN), which is set to release numbers on Thursday before the market open. This is a provider of equipment, software and service solutions that support the transport, switching, aggregation and management of voice, video and data traffic on communications networks. Wall Street analysts, on average, expect Ciena to report revenue of $468.43 million on a loss of 6 cents per share.

The current short interest as a percentage of the float for Ciena is extremely high at 22.1%. That means that out of the 98.24 million shares in the tradable float, 21.57 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then CIEN could rip higher post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, CIEN is currently trending just above both its 50-day and 200-day day moving averages, which is bullish. This stock has been uptrending strong for the last month and change, with shares soaring from a low of $11.95 to today's intraday high of $15.96 a share. During that uptrend, shares of CIEN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CIEN within range of triggering a major breakout trade post-earnings.

If you're bullish on CIEN, 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 $17.26 to $17.85 a share, and then above more overhead resistance at $18.39 to $18.79 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 3,423,520 shares. If that breakout hits, then CIEN will set up to re-test or possibly take out its next major overhead resistance levels at $22 to $24 a share.

I would avoid CIEN 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 $14.70 a share with high volume. If we get that action, then CIEN will set up to re-test or possibly take out its next major support levels at its 50-day of $13.73 and then more support at around $12.50 a share.

Joy Global

Another earnings short-squeeze trade play is Joy Global (JOY), which is set to release numbers on Wednesday before the market open. This company is a manufacturer and servicer of mining equipment for the extraction of coal and other minerals and ores. The equipment is used in the mining regions globally to mine coal, copper, iron ore, oil sands, and other minerals. Wall Street analysts, on average, expect Joy Global to report revenue of $1.42 billion on earnings of $1.91 per share.

During the last quarter, this company missed Wall Street estimates by 9 cents per share, after reporting a net income of $1.79 per share versus estimates of $1.90 a share. Joy Global beat Wall Street estimates during the second quarter. This company has averaged year-over-year revenue growth of 31.3% over the last four quarters.

The current short interest as a percentage of the float for Joy Global stands at 6.1%. That means that out of the 105.05 million shares in the tradable float, 6.39 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a decent short-covering rally if Joy Global can deliver bullish earnings news.

From a technical perspective, JOY is currently trending just below its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last month and change, with shares moving between $53.67 a share on the downside and $60 a share on the upside. A high-volume outside of that range post-earnings will likely set up the next major trend for shares of JOY.

If you're bullish on JOY, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above its 50-day at $58.30 and its 200-day at $61.45 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2,309,240 shares. If that breakout triggers, then JOY will set up to re-test or possibly take out its next major overhead resistance levels at $64 to $66.80 a share.

I would avoid JOY 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 $54.48 to $53.67 a share with heavy volume. If we get that move, then JOY will set up to re-test or possibly take out its next major support levels at $50.60 to $49.34 a share.

Avanir Pharmaceuticals

My final earnings short-squeeze trade idea is Avanir Pharmaceuticals (AVNR), which is set to release numbers on Wednesday after the market close. This company is focused on acquiring, developing and commercializing novel therapeutic products for the treatment of central nervous system disorders. Wall Street analysts, on average, expect Avanir Pharmaceuticals to report revenue of $12.90 million on a loss of 9 cents per share.

The current short interest as a percentage of the float for Avanir Pharmaceuticals is very high at 16.3%. That means that out of the 134.78 million shares in the tradable float, 21.33 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 1.13 million shares. If the bears are caught leaning too hard into the quarter, then we could easily see an explosive short-squeeze develop post-earnings.

From a technical perspective, AVNR is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last three months, with shares falling from a high of $3.94 to a recent low of $2.07 a share. During that downtrend, shares of AVNR were consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of AVNR have recently started to rebound of that $2.07 low and move within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on AVNR, then I would wait until after its report and look for long-biased trades once it breaks out above some near-term overhead resistance levels at $2.85 to $2.92 a share and then above $3.06 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1,170,160 shares. If that breakout triggers, then AVNR will set up to re-test or possibly take out its next major overhead resistance levels at $3.26 to $.57 a share. Any high-volume move $3.57 will then put $3.94 into focus for shares of AVNR.

I would simply avoid AVNR if after its report the stock fails to trigger that breakout, and then drops back below some key near-term support at $2.50 a share with high volume.

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.