Stock Quotes in this Article: AMD, MOLX, RFMD, SLAB, YHOO

 WINDERMERE, Fla. (Stockpickr) -- Short-sellers hate being caught short a stock that produces earnings that please the bulls. 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 timeframe that your profits add up quickly.

>>5 Rocket Stocks to Buy This Earnings Season

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 by waiting you risk missing a lot of the move. 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.

Here’s a look at a number of stocks that could experience big short squeezes when they report earnings this week.

RF Micro Devices

My first earnings short-squeeze trade idea is semiconductor player RF Micro Devices (RFMD), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect RF Micro Devices to report revenue of $225.04 million on earnings of 3 cents per share.

During the last quarter, RF Micro Devices beat Wall Street estimates by 1 cent. The company has seen its income trend lower year over year by an average of 22.5% over the past five quarters. Revenue has trended down for the past three quarters.

The current short interest as a percentage of the float for RF Micro Devices is pretty high at 9.4%. That means that out of the 271.27 million shares in the tradable float, 25.62 million shares are sold short by the bears.

From a technical standpoint, RFMD is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend for the past couple of months. During that downtrend, the stock has dropped from $7.89 in October to a recent low of $4.41 a share. That recent low came on a large gap down in price on heavy volume. Shares of RFMD have started to rally a bit from that gap down to its current price of just under $5 a share.

If you’re bullish on RFMD, I would get long after they report their earnings if the stock breaks out above some near-term overhead resistance at $5.17 a share on high-volume. Look for volume that’s tracking in close to or above its three-month action of 7,524,560 shares. If we get that action, I would then look for RFMD to take out its 50-day moving average of $5.61 and re-test its 200-day moving average of $6.10, or possibly hit $6.50 a share.

I would avoid this stock completely from the long side If RFMD fails to break out over $5.17 a share with volume after its earnings report. A failure to break out should set this stock up to re-test that recent low of $4.41 and blow right through it. If RFMD losses $4.41 with volume post-earnings, then this stock could easily trade back toward its next major support zone at $3.65 a share.

As of the most recently reported period, RF Micro is one of the top holdings at Discovery Capital Management.

Advanced Micro Devices

Another potential earnings short-squeeze play is Advanced Micro Devices (AMD), which is set to report results on Tuesday after the market close. This is a global semiconductor company. Wall Street analysts, on average, expect Advanced Micro devices to report revenue of $1.72 billion on earnings of 16 cents per share.

Wall Street is looking for a decent quarter out of Advanced Micro Devices this week, since estimates are for 16 cents per share, which is up from 14 cents per share a year-ago. Over the last four quarters, revenue as trended higher by 0.6% on average year over year. During the most recent quarter, the company registered its best revenue gains when it increased 4.4% from the year-ago.

The current short interest as a percentage of the float for Advanced Micro Devices is extremely high at 15.1%. That means that out of the 588.50 million shares in the tradable float, 89.05 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.2%, or by about 2.76 million shares.

From a technical standpoint, AMD is currently trading right at its 200-day moving average and above its 50-day moving average, which is neutral trendwise. This stock recently triggered a big breakout trade once it moved above some past overhead resistance at $6 to $6.05 a share on big volume. In fact, volume for the past five trading sessions has been expanding dramatically to the upside.

If you’re bullish on AMD, I would wait until after it report its results and buy the stock once it moves back above its 200-day moving average of $6.60 on high-volume. Look for volume that’s tracking in close to or above its three-month average action of 15.9 million shares. If we get that move, I would target a move back towards its next significant overhead resistance levels at $7.44 to $7.87 a share, or possibly much higher.

I would avoid any long trades or short AMD after their report if the stock fails to take out the 200-day moving average of $6.60 with volume. If that level holds as stiff resistance, then I would look for AMD to trade lower back towards its 50-day moving average of $5.54.

AMD is one of Scott Rothbort's " 11 Worst-Run Companies of 2011."

Yahoo!

An earnings short-squeeze play in the computer services complex is Yahoo! (YHOO), another of Rothbort's worst-run companies of 2011,which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Yahoo to report revenue of $1.19 billion on earnings of 24 cents per share.

Wall Street doesn’t expect a great quarter out of Yahoo! this week, with analysts looking for a 7.7% drop in earnings from the same quarter last year. Revenue for Yahoo! has trended lower for the past four quarters. Revenue dropped by 24% in the third quarter, it fell 23.3% in the second quarter from a year ago, it dropped 24% in the first quarter from a year ago, and it dropped 11.9% in the fourth quarter of the last fiscal year.

The current short interest as a percentage of the float for Yahoo! is notable at 3.3%. That means that out of the 1.05 billion shares in the tradable float, 36.65 million are sold short by the bears. This isn’t a huge short interest, but it’s more than enough spark a sharp move higher if Yahoo can deliver a strong quarter and raise guidance.

From a technical standpoint, YHOO is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has been trading within a range for the past few months between $14.57 and $16.79 a share. A high-volume move outside of that range post-earnings should set this stock up for its next big trend.

If you’re bullish on YHOO, I would wait until after it reports itsearnings and buy some shares if the stock breaks out above $16.15 a share on high volume. Look for volume that’s tracking in close to or above its three-month average action of 21.75 million shares. If we get that action, then I would add to any long positions once YHOO takes out $16.79 with volume. A high-volume move over $16.15 and $16.79 should set this stock up for a run back towards its 2011 high of $18.84 a share.

I would avoid YHOO or get short this stock if it drops below its 200-day moving average of $15.24 on high-volume after their report. If we get that action, I would then add to any short positions once YHOO takes out $14.57 with volume. Target a drop back toward $13.11 a share, or possibly lower if the bears hammer this stock down post-earnings.

Silicon Laboratories

One earnings short-squeeze play in the semiconductor complex is Silicon Laboratories (SLAB), which is set to release numbers on Wednesday before the market close. This company designs and develops analog-intensive, mixed-signal integrated circuits for a range of applications. Wall Street analysts, on average, expect Silicon Laboratories to report revenue of $119.79 million on earnings of 43 cents per share.

This company is going for its fifth consecutive quarter of beating Wall Street estimates when it reports this week. Revenue has trended lower for the past three quarters, and their gross margin shrank by 4.3% in the last quarter. Revenue dropped 0.9% while cost of sales jumped 11.4% to $46.2 million from a year ago.

The current short interest as a percentage of the float for Silicon Laboratories is very high at 16.3%. That means that out of the 36.41 million shares in the tradable float, 6.21 million are sold short by the bears. This stock has a rather low float and very high short interest. If Silicon Laboratories can report a solid quarter and raise forward guidance, then this stock could easily see a monster short-squeeze.

From a technical standpoint, SLAB is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been trading within a range since last November, between $40.22 and $45 a share. The stock is now starting to breakout above that range high of $45.10 and some past overhead resistance at $46.28 today with shares currently trading at around $46.50.

If you’re bullish on SLAB, I would look to be a buyer after its report if the stock can manage to hold above those breakout levels of $45.10 to $46.28 a share on strong volume. Look for volume to flow into the stock that’s near or above its three-month average action of 399,735 shares. If we get that move, then I would target a run back towards the next significant overheard resistance at $50.27 a share, or possibly $53.17 a share.

I would avoid any long trades in SLAB or get short this stock if it drops back below some near-term support at $45 a share on heavy volume following their report. Any high-volume move back below that level should set this stock up to re-test its 50-day moving average of $43.04 a share, or possibly its 200-day moving average of $39.52 if the bears whack this lower post-earnings.

Molex

My final earnings short-squeeze trade for today is electronics and controls player Molex (MOLX), which is set to release numbers on Wednesday before the market close. This company manufactures and sells electronic components, including switches and fiber optic products and systems. Wall Street analysts, on average, expect Molex to report revenue of $890.19 on earnings of 41 cents per share.

Wall Street is looking for a lighter quarter out of Molex, since the company reported a profit of 45 cents a year ago, and the consensus estimate is for earnings per share of 41 cents for this quarter. Molex has seen its net income trend higher for three straight quarters. During the first quarter, net income jumped 7.2% and it soared 70.2% in the fourth quarter of the last fiscal year.

The current short interest as a percentage of the float for Molex stands at 8.5%. That means that out of the 136.42 million shares in the tradable float, 5.44 million shares are sold short by the bears. This is a decent short interest, so a bullish quarter out of Molex should spark a sizable short-squeeze.

From a technical standpoint, MOLX is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently triggered a big breakout trade once it cleared some overhead resistance at $25.93 on decent volume. Now this stock is trading within range of yet another big breakout if it can manage to take out an overhead resistance area from earlier 2011 where the stock doubled topped.

If you’re bullish on MOLX, I would wait until after it releases earnings and buy the stock if it breaks out above $27.61 to $27.82 with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 879,347 shares. If we get that action, I would look for MOLX to spike higher by 10% or more post-earnings.

I would get short or avoid MOLX from the long side if after their report this stock fails to break out and drops back below some near-term support zones at $26 to $25 a share on high-volume. Target a drop back towards its 50-day moving average of $24.21 or its 200-day moving average of $23.65 if the bears hammer this lower post-earnings.

To see more potential earnings short squeeze plays, including Fusion-IO (FIO), RPC (RES) and First Cash Financial Services (FCFS), 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 stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.