Stock Quotes in this Article: DDD, GPRE, SGI, UPL, TWTR

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.

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.

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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.

3D Systems

My first earnings short-squeeze trade idea is 3D printing player 3D Systems (DDD), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect 3D Systems to report revenue of $145.50 million on earnings of 15 cents per share.

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The current short interest as a percentage of the float for 3D Systems is extremely high at 29.9%. That means that out of the 98.42 million shares in the tradable float, 27.07 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.8%, or by about 2.38 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of DDD could easily rip sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, DDD 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 four months, with shares falling from its high of $97.28 to its recent low of $45.29 a share. During that downtrend, shares of DDD have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of DDD have started to rebound off its recent low of $45.29 and it's starting to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on DDD, 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 $52.85 to $55 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 5.70 million shares. If that breakout gets underway post-earnings, then DDD will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $61.31 a share to its 200-day moving average of $64.05 a share. Any high-volume move above those levels will then give DDD a chance to trend north of $65 a share.

I would simply avoid DDD 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 $45.29 a share with high volume. If we get that move, then DDD will set up to re-test or possibly take out its next major support levels at $41 to $35 a share. Any high-volume move below those levels will then give DDD a chance to trend below $35 and possibly hit $30 a share.

Green Plains Renewable Energy

Another potential earnings short-squeeze play is ethanol producer and distributor Green Plains Renewable Energy (GPRE), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Green Plains Renewable Energy to report revenue $775.76 million on earnings of 77 cents per share.

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The current short interest as a percentage of the float for Green Plains Renewable Energy is extremely high at 24.3%. That means that out of the 23.98 million shares in the tradable float, 5.78 million shares are sold short by the bears. This stock has a large short interest and a very low tradable float. Any bullish earnings news could easily kick off a monster short-squeeze post-earnings that forces the bears to cover some of their positions.

From a technical perspective, GPRE is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last six months, with shares moving higher from its low of $13.73 to its recent high of $32.60 a share. During that uptrend, shares of GPRE have been making mostly higher lows and higher highs, which is bullish technical price action. Shares of GPRE are now starting to trend within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on GPRE, 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 $30.96 a share to its 52-week high at $32.60 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.08 million shares. If that breakout triggers, then GPRE will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $40 to $45 a share.

I would simply avoid GPRE 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 of $28.17 a share to more near-term support at $26 a share with high volume. If we get that move, then GPRE will set up to re-test or possibly take out its next major support levels at $22 to its 200-day moving average at $20.10 a share.

Twitter

Another potential earnings short-squeeze candidate is social media player Twitter (TWTR), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Twitter to report revenue of $241.47 million on a loss of 3 cents per share.

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The current short interest as a percentage of the float for Twitter is very high at 18%. That means that out of the 331.44 million shares in the tradable float, 45.76 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.1%, or by about 983,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of TWTR could easily soar sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, TWTR is currently trending below its 50-day moving average, which is bearish. This stock has been downtrending badly over the last four months, with shares moving lower from its high of $74.73 to its recent low of $39.68 a share. During that downtrend, shares of TWTR have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on TWTR, 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 $45 to $47 a share and then once it clears its 50-day moving average of $49.33 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 13.03 million shares. If that breakout materializes after earnings, then TWTR will set up to re-test or possibly take out its next major overhead resistance levels at $55 to $60 a share.

I would avoid TWTR 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 $39.68 to its 52-week low of $38.80 a share with high volume. If we get that move, then TWTR will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $30 to $25 a share.

Ultra Petroleum

Another earnings short-squeeze prospect is independent oil and gas player Ultra Petroleum (UPL), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Ultra Petroleum to report revenue of $291.57 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for Ultra Petroleum is extremely high at 22%. That means that out of the 150.81 million shares in the tradable float, 36 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of UPL could easily soar sharply higher post-earnings as the bears jump to cover some of their bets.

From a technical perspective, UPL 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 six months, with shares soaring higher from its low of $18.22 a share to its recent high of $30.95 a share. During that uptrend, shares of UPL have been consistently making higher lows and higher highs, which is bullish technical price action. Shares of UPL are now trending within range of triggering a major breakout trade post-earnings.

If you're bullish on UPL, 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 $30.95 a share (or Wednesday's intraday high if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 3.77 million shares. If that breakout hits, then UPL will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $40 to $45 a share.

I would simply avoid UPL 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 $29.26 to $28 share with high volume. If we get that move, then UPL will set up to re-test or possibly take out its next major support levels at $27.11 to its 50-day moving average of $26.48 a share. If those levels get taken out with volume, then UPL could easily re-visit its 200-day moving average of $22.45 a share.

Silicon Graphics

My final earnings short-squeeze play is technology player Silicon Graphics (SGI), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Silicon Graphics to report revenue of $131.33 million on a loss of 16 cents per share.

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The current short interest as a percentage of the float for Silicon Graphics is pretty high at 13.8 %. That means that out of the 32.17 million shares in the tradable float, 4.41 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. If the bulls get the earnings news they're looking for, then shares of SGI could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, SGI 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 three months, with shares moving between $11.57 on the downside and $13.69 on the upside. Any high-volume move above the upper-end of its recent range post-earnings could trigger a breakout trade for shares of SGI.

If you're in the bull camp on SGI, 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 overheard resistance levels at $12.86 to $13.69 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 366,922 shares. If that breakout hits after earnings, then SGI will set up to re-test or possibly take out its next major overhead resistance levels at $14 to $14.43 a share. Any high-volume move above those levels will then give SGI a chance to tag $16 to $18 a share.

I would avoid SGI 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 $11.57 to its 52-week low of $11.46 a share with high volume. If we get that move, then SGI will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $10 to $9 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.