Stock Quotes in this Article: CNS, GHL, SNDK, URI, WWW

MADISON, 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.

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.

>>5 Stocks Poised for Breakouts

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.

>>5 Rocket Stocks to Buy After Last Week's Rally

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.

With that in mind, here’s a look at several stocks that could experience big short squeezes when they report earnings this week.

>>5 Stocks Under $10 Set to Soar Higher

United Rentals

My first earnings short-squeeze play is equipment rental player United Rentals (URI), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect United Rentals to report revenue of $1.11 billion on earnings of 48 cents per share.

Revenue for United Rentals in 2012 jumped 58% over the prior year to $4.1 billion, with fourth-quarter profit up 55% to $1.27 a share. The company expects 2013 revenue to hit $5 billion, and analysts see earnings rising 25% this year to $4.70 and 28% in 2014. KeyBanc Capital Markets analyst Joe Box recently said, “The rental trend will continue for at least another year.”

>>5 Must-See Charts to Trade in April

The current short interest as a percentage of the float for United Rentals is very high at 15%. That means that out of the 92.44 million shares in the tradable float, 13.84 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then we could easily see a monster short-squeeze post-earnings.

From a technical perspective, URI is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been trending sideways for the last month and change, with shares moving between $57.24 on the upside and $48.47 on the downside. A high-volume move above the upper-end of its recent range could trigger a big breakout for URI post-earnings.

If you’re bullish on URI, then I would wait until after its report and look for long-biased trades if this stock manages to take out its 50-day moving average of $53.32 a share and then once it breaks out above its 52-week high at $57.24 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2 million shares. If that breakout hits, then URI will set up to enter new 52-week-high territory above, which is bullish technical price action. Some possible upside targets off that breakout are $65 to $70 a share.

I would simply avoid URI 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 $48.47 to $46.83 a share with high volume. If we get that move, then URI will set up to re-test or possibly take out its next major support levels at $42 to its 200-day moving average at $41.89 a share.

Wolverine World Wide

Another potential earnings short-squeeze trade is branded footwear, apparel and licensing player Wolverine World Wide (WWW), which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Wolverine World Wide to report revenue of $631.52 million on earnings of 55 cents per share.

The current short interest as a percentage of the float for Wolverine World Wide is pretty high at 10.9%. That means that out of the 44.90 million shares in the tradable float, 5.29 million shares are sold short by the bears. Any bullish earnings news could easily spark a decent short-covering rally for shares of WWW post-earnings.

>>3 Tech Stocks Spiking on Big Volume

From a technical perspective, WWW 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 few weeks, with shares ripping higher off its 200-day moving average at $42.83 to its recent high of $46.80 a share. During that uptrend, shares of WWW have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WWW within range of triggering a near-term breakout trade post-earnings.

If you’re in the bull camp on WWW, 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 $46.80 a share and then once it takes out its 52-week high at $47.99 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 511,000 shares. If that breakout his, then WWW will set up to enter new 52-week-high territory above $47.99, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $60 a share.

I would simply avoid WWW 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 $45.50 to $45 a share with high volume. If we get that move, then WWW will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $43.73 to its 200-day moving average at $42.85 a share.

Greenhill

Another earnings short-squeeze candidate is independent investment banking player Greenhill (GHL), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Greenhill to report revenue of $102.10 million on earnings of 68 cents per share.

The current short interest as a percentage of the float for Greenhill is pretty high at 11.5%. That means that out of the 25.99 million shares in the tradable float, 2.95 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. If Greenhill gives the bulls what they’re looking for, then this stock could easily squeeze the shorts post-earnings.

From a technical perspective, GHL is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been uptrending relatively strong for the last few weeks, with shares moving higher off its 200-day moving average of $49.06 to its recent high of $54.58 a share. During that uptrend, shares of GHL have been consistently making higher lows and higher highs, which is bullish technical price action.

That move has now pushed shares of GHL within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on GHL, 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 $54.58 a share and then once it clears its 50-day at $57.08 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 273,000 shares. If we get that breakout, then GHL will set up to re-test or possibly take out its next major overhead resistance levels at $60.84 to $61.52 a share. If those levels get taken out with volume, then GHL could hit $65 after earnings.

I would avoid GHL 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 $52 to $51.56 a share with high volume. If we get that move, then GHL will set up to re-test or possibly take out its next major support levels $50 to $49.23 a share. Any high-volume move below those levels will then put $46 into range for shares of GHL.

Cohen & Steers

Another earnings short-squeeze prospect is global investment management player Cohen & Steers (CNS), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Cohen & Steers to report revenue of $73.65 million on earnings of 41 cents per share.

The current short interest as a percentage of the float for Cohen & Steers stands at 10.8%. That means that out of the 18.70 million shares in the tradable float, 2.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7%, or by about 132,000 shares. If the shorts are caught pressing their bets into a bullish quarter, then we could easily see a decent short-squeeze develop post-earnings.

From a technical perspective, CNS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently pulled back to its 50-day moving average at $34.32 and found buying interest. Shares of CNS have ripped higher off its 50-day to its recent high of $39.17 a share. That move has now pushed shares of CNS within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on CNS, then I would wait until after its report and look for long-biased trades if this stock manages to break out to a new 52-week high above $39.17 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 164,000 shares. If that breakout triggers, then CNS will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 or higher post-earnings.

I would avoid CNS 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 $37 a share with high volume. If we get that move, then CNS will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $34.32 a share or its 200-day moving average at $31.17 a share.

SanDisk

My final earnings short-squeeze play today is data storage solutions provider SanDisk (SNDK), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect SanDisk to report revenue of $1.30 billion on earnings of 77 cents per share.

During the last quarter, this company reported earnings of 56 cents per share. Over the last four quarters, SanDisk has reported decreasing revenue. In the fourth quarter of the last fiscal year, revenue dropped 2.2% to $1.54 billion. Before that, revenues dropped 10.1% year-over-year in the third quarter of the last fiscal year, and it dropped 24.9% in the second quarter of the last fiscal year.

Just recently, Stifel reiterated its buy rating on SNDK and changed its price target from $54 to $62 a share.

The current short interest as a percentage of the float for SanDisk sits at 3.4%. That means that out of the 241.22 million shares in the tradable float, 8.09 million shares are sold short by the bears. This isn’t a giant short interest, but it’s more than enough to send shares of SNDK sharply higher post-earnings if the company can deliver the earnings news the bulls are looking for.

From a technical perspective, SNDK 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 four months and change, with shares soaring higher from its low of $38.47 to its recent high of $58.92 a share. During that uptrend, shares of SNDK have been consistently making higher lows and higher highs, which is bullish technical price action.

If you’re in the bull camp on SNDK, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high of $58.92 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 3.92 million shares. If that breakout triggers, then SNDK could easily trend well north of $60 a share. Some possible upside targets are $70 or higher if SNDK gets into new 52-week-high territory with heavy volume.

I would simply avoid SNDK 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 $56.50 to $56 a share with high volume. If we get that move, then SNDK will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $52.80 a share to $50 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.

RELATED LINKS:

>>4 Stocks to Trade This Week
>>5 Dividend Stocks Ready to Pay You More

>>2 Biotech Stocks Under $10 to Watch

Follow Stockpickr on Twitter and become a fan on Facebook.

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.