Stock Quotes in this Article: CALL, GMCR, INFI, LQDT, SPPI

DELAFIELD, Wis. (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.

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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.

Green Mountain Coffee Roasters

My first earnings short-squeeze play is specialty coffee and coffee maker player Green Mountain Coffee Roasters (GMCR), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Green Mountain Coffee Roasters to report revenue of $981.13 million on earnings of 77 cents per share.

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Just recently, KeyBanc analyst Akshay Jagdale reiterated his buy rating on GMCR with a $90 price target, saying concerns about competition for the company's K-Cups aren't an issue and a new partnership could be announced soon. Jagdale said that sales growth will eventually accelerate on the back of new channel penetration, brewer innovation, international expansion, new beverage opportunities and stabilization of share losses.

The current short interest as a percentage of the float for Green Mountain Roasters is extremely high at 25.3%. That means that out of the 129.35 million shares in the tradable float, 30.87 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.9%, or by about 2.26 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of GMCR could easily experience a monster short-squeeze post-earnings.

From a technical perspective, GMCR 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 month, with shares moving higher from its low of $67.51 to its recent high of $81.52 a share. During that move, shares of GMCR have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GMCR within range of triggering a major breakout trade post-earnings.

If you're bullish on GMCR, 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 $81.52 to its 52-week high at $82.95 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 4.22 million shares. If that breakout triggers, then GMCR will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $100 to $110 a share.

I would simply avoid GMCR or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day moving average at $75.07 a share with high volume. If we get that move, then GMCR will set up to re-test or possibly take out its next major support levels at $71.41 to $67.51 a share.

Spectrum Pharmaceuticals

Another potential earnings short-squeeze trade is biotechnology player focused in hematology and oncology Spectrum Pharmaceuticals (SPPI), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Spectrum Pharmaceuticals to report revenue of $33.41 million on a loss of 12 cents per share.

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The current short interest as a percentage of the float for Spectrum Pharmaceuticals is extremely high at 33.5%. That means that out of the 52.42 million shares in the tradable float, 19.22 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then this stock could easily explode to the upside post-earnings as the bears rush to cover some of their short bets.

From a technical perspective, SPPI is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways for the last month, with shares moving between $8.10 on the downside and $9.21 on the upside. A high-volume move above the upper end of its recent range post-earnings could trigger a big breakout trade for shares of SPPI.

If you're in the bull camp on SPPI, 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 $8.54 to $9.21 a share and then once it clears its 200-day moving average at $9.63 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 904,653 shares. If that breakout hits, then SPPI will set up to re-fill some of its previous gap down zone from March that started near $12.50 a share.

I would simply avoid SPPI 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 its 50-day of $8.17 to $8.10 a share. If we get that move, then SPPI will set up to re-test or possibly take out its next major support levels at $7.50 to $7 a share.

Liquidity Services

One potential earnings short-squeeze candidate is auction marketplace for surplus and salvage assets player Liquidity Services (LQDT), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Liquidity Services to report revenue of $118.51 million on a loss of 45 cents per share.

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During the last quarter, this company reported revenue of $130.3 million and GAAP reported sales were 3.7% higher than the prior-year quarter's $125.7 million. Also during the last quarter, this company reported non-GAAP EPS of 48 cents per share and GAAP EPS was 39 cents per share, which was 32% lower than the prior-year quarter's 57 cents per share.

The current short interest as a percentage of the float for Liquidity Services is extremely high at 38.1%. That means that out of the 25.12 million shares in the tradable float, 9.74 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.4%, or by about 231,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of LQDT could rip substantially higher post-earnings as the bears jump to cover some of their bets.

From a technical perspective, LQDT is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped down sharply from $34 to $27.64 a share with heavy downside volume. Following that move, shares of LQDT have stabilized with the stock trading between $27.64 on the downside and just over $30 on the upside. Shares of LQDT are now trending in oversold territory, since its current relative strength index reading is 34.29. Oversold can always get more oversold, but it's also an area where a stock can experience a powerful rebounded higher from.

If you're bullish on LQDT, 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 $29.52 to $30.44 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 431,516 shares. If that breakout hits, then LQDT will set up to re-fill some of its previous gap down zone from July that started near $34 a share. This stock could see even more upside if that gap gets filled and it then takes out its next major overhead resistance level at $35.71 a share.

I would avoid LQDT 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 $28.20 to $27.64 share with high volume. If we get that move, then LQDT will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $25 to $20 a share.

MagicJack VocalTec

Another earnings short-squeeze prospect is voice-over-Internet product maker and VoIP service provider MagicJack VocalTec (CALL), which is set to release numbers on Thursday after the market close. There are currently no analysts' estimates available for this quarter.

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The current short interest as a percentage of the float for MagicJack VocalTec is extremely high at 41.3%. That means that out of the 10.53 million shares in the tradable float, 4.18 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of CALL could explode higher post-earnings as the bears rush to cover some of their short bets.

From a technical perspective, CALL is currently trending just below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last two months, with shares moving between $13.60 on the downside and $16.57 on the upside. A high-volume move above the upper-end of its recent range post-earnings could trigger a big breakout trade for shares of CALL.

If you're bullish on CALL, 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 its 200-day moving average of $15.68 a share and then once it takes out more resistance at $16.57 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 303,956 shares. If that breakout triggers, then CALL will set up to re-test or possibly take out its next major overhead resistance levels at $18.50 to $19.28 a share. Any high-volume move above $19.28 will then put its next major overhead resistance levels at $22 to $24 into range for shares of CALL.

I would avoid CALL 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 $14.52 to $14.12 a share and then below more support at $13.60 a share with high volume. If we get that move, then CALL will set up to re-test or possibly take out its next major support levels at $13.26 to $11.92 a share.

Infinity Pharmaceuticals

My final earnings short-squeeze play is drug discovery and development player Infinity Pharmaceuticals (INFI), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Infinity Pharmaceuticals to report a loss of 62 cents per share.

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The current short interest as a percentage of the float for Infinity Pharmaceuticals is notable at 7.8%. That means that out of the 40.76 million shares in the tradable float, 3.10 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.9%, or by about 172,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of INFI could soar substantially higher post-earnings as the bears abandon some of their short bets.

From a technical perspective, INFI 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 strong for the last month, with shares soaring higher from its low of $15.45 to its recent high of $23.68 a share. During that move, shares of INFI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of INFI within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on INFI, 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 $23.68 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.96 million shares. If that breakout triggers, then INFI will set up to re-fill some of its previous gap down zone from May that started near $29 a share. Any high-volume move above $29 will then put $31 to $34 into range for shares of INFI.

I would avoid INFI 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 $22 to $21 a share with high volume. If we get that move, then INFI will set up to re-test or possibly take out its 50-day moving average of $19.13 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 Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., 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.