Stock Quotes in this Article: HAIN, MDT, PDCO, YOKU, GLOG

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.

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.

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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 Wall 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.

GasLog

My first earnings short-squeeze trade idea is liquefied natural gas player GasLog (GLOG), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect GasLog to report revenue of $ 69.23 million on earnings of 13 cents per share.

The current short interest as a percentage of the float for GasLog is notable at 5%. That means that out of the 44.25 million shares in the tradable float, 2.25 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 165,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of GLOG could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, GLOG is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $23.77 to its intraday high of $26.69 a share. During that move, shares of GLOG have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GLOG within range of triggering a near-term breakout trade post-earnings.

If you're bullish on GLOG, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $27.37 a share and then once it clears more key resistance levels at $28.41 to $28.75 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 1.29 million shares. If that breakout hits post-earnings, then GLOG will set up to re-test or possibly take out its 52-week high at $32.44 a share.

I would simply avoid GLOG 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 $23.77 to its 200-day moving average at $22.44 a share with high volume. If we get that move, then GLOG will set up to re-test or possibly take out its next major support levels at $20 to $18 a share.

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Youku Tudou

Another potential earnings short-squeeze play is China-based Internet television player Youku Tudou (YOKU), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Youku Tudou to report revenue $980.61 million on a loss of 34 cents per share.

The current short interest as a percentage of the float for Youku Tudou is very high at 13.9%. That means that out of the 66.24 million shares in the tradable float, 9.23 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 20%, or by about 1.53 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of YOKU could easily explode sharply higher post-earnings as the shorts move to cover some of their trades.

From a technical perspective, YOKU is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $18.35 to its recent high of $22.69 a share. During that uptrend, shares of YOKU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of YOKU within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on YOKU, 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 $22.69 to $24.60 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.97 million shares. If that breakout triggers post-earnings, then YOKU will set up to re-test or possibly take out its next major overhead resistance levels at $27 to $29, or even $31 to $32 a share.

I would simply avoid YOKU 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 its 50-day moving average of $21.04 a share to right around $20 a share with high volume. If we get that move, then YOKU will set up to re-test or possibly take out its next major support levels at $18.35 to $17.77 a share.

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Medtronic

Another potential earnings short-squeeze candidate is device-based medical therapies player Medtronic (MDT), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Medtronic to report revenue of $4.25 billion on earnings of 92 cents per share.

The current short interest as a percentage of the float for Medtronic is notable at 6.1%. That means that out of the 993.60 million shares in the tradable float, 61 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 23.2%, or by about 11.46 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of MDT could easily jump sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, MDT is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $60.68 to its recent high of $64.04 a share. During that move, shares of MDT have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MDT within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on MDT, 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 $64.04 to $65.19 a share and then above its 52-week high at $65.50 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 8.71 million shares. If that breakout materializes post-earnings, then MDT will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $75 to $80 a share.

I would avoid MDT or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 50-day moving average at $62.78 a share to with high volume. If we get that move, then MDT will set up to re-test or possibly take out its next major support levels at $60.68 to its 200-day moving average of $59.21 a share. Any high-volume move above $59.21 a share will then give MDT a chance to tag its next major support levels at $58.04 to $55.58 a share.

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Patterson Companies

Another earnings short-squeeze prospect is medical equipment player Patterson Companies (PDCO), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Patterson Companies to report revenue of $1.04 billion on earnings of 50 cents per share.

The current short interest as a percentage of the float for Patterson Companies is notable at 8.1%. That means that out of the 82.38 million shares in the tradable float, 6.69 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.2%, or by about 80,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of PDCO could easily rip sharply higher post-earnings as the shorts move quick to cover some of their trades.

From a technical perspective, PDCO is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at $38.42 to $38.04 a share. Following that bottom, shares of PDCO have started to move back above its 50-day moving average at $39.22 a share and it's beginning to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on PDCO, 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 $40.13 to its 200-day moving average of $40.32 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 787,362 shares. If that breakout starts post-earnings, then PDCO will set up to re-test or possibly take out its next major overhead resistance levels at $43.06 to its 52-week high at $44.39 a share. Any high-volume move above $44.39 a share will then give PDCO a chance to hit $50 to $55 a share.

I would simply avoid PDCO or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out some key near-term support levels at $38.50 to $38.04 a share with high volume. If we get that move, then PDCO will set up to re-test or possibly take out its next major support levels at $36.84 to $35.95 a share, or even $32 a share.

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Hain Celestial Group

My final earnings short-squeeze play is organic and natural products player Hain Celestial Group (HAIN), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Hain Celestial Group to report revenue of $578.27 million on earnings of 89 cents per share.

The current short interest as a percentage of the float for Hain Celestial Group is notable at 7.3%. That means that out of the 48.72 million shares in the tradable float, 3.58 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.4%, or by about 277,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of HAIN could easily jump sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, HAIN 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 moving higher from its low of $81.67 to its intraday high of $89.25 a share. During that uptrend, shares of HAIN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of HAIN within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on HAIN, 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 $90 to $92.60 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 545,020 shares. If that breakout develops post-earnings, then HAIN will set up to re-test or possibly take out its next major overhead resistance levels at $95.36 to its 52-week high at $98.83 a share. Any high-volume move above $98.83 will then give HAIN a chance to trend well north of $100 a share.

I would avoid HAIN 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 its 50-day moving average of $87.65 a share to more support at $86 a share with high volume. If we get that move, then HAIN will set up to re-test or possibly take out its next major support levels at $84 to $81.67 a share. Any high-volume move below $81.67 to $79.50 a share will then give HAIN a chance to tag its next major support level at $73 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.