Stock Quotes in this Article: ASPN, CDNS, COCO, MTW, UBNT

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.

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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. That’s why it can be worth betting prior to the report -- but only if you have a very strong conviction that the stock is going to rip higher, and its acting technically very bullish.

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

Ubiquiti Networks

My first earnings short-squeeze trade candidate is communications equipment player Ubiquiti Networks (UBNT), which is set to release its numbers on Tuesday after the market close. This company designs, manufactures and sells broadband wireless solutions worldwide. Wall Street analysts, on average, expect Ubiquiti Networks to report revenue of $84.60 million on earnings of 25 cents per share.

If you’re looking for a stock that’s printing new highs as we approach their earnings report, then take a look at shares of UBNT. This stock came public back in October of last year, and since then it’s traded within a range between $17.33 and $23.04 a share. Just today, UNBT has started to break out above $23.04 and print all-time highs on solid volume.

The current short interest as a percentage of the float for Ubiquiti Networks is extremely high at 24%. That means that out of the 7.48 million shares in the tradable float, 3.02 million shares are sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 48.6%, or by about 988,000 shares.

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If you’re bullish on UBNT, I would look to play this stock from the long side after its earnings report if the stock can hold above $22.81 to $23.04 a share. If this stock does not come back below those breakout levels, then it should continue to ramp higher since it’s so heavily shorted.

You could be a buyer of UBNT after its report once the stock takes out its daily high, or you could buy off any weakness as long as $22.81 to $23.04 hold firm. I would consider a strong up move on volume that’s above 205,798 to be bullish.

Aspen Technology

Another potential earnings short-squeeze play is software player Aspen Technology (AZPN), which is set to report results on Tuesday after the market close. Wall Street analysts, on average, expect Aspen Technology to report revenues of $53.60 million on a loss of 5 cents per share.

If you’re looking for a stock that’s within range for a big breakout post-earnings, then make sure to check out shares of Aspen Technology. This stock is currently trading just a few percentage points off of its 52-week high of $18.73 a share as we approach its earnings report.

The current short interest as a percentage of the float for Aspen Technology stands at 4%. That means that out of the 82.18 million shares in the tradable float, 3.77 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.9%, or by about 139,000 shares.

From a technical standpoint, AZPN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom at around $15.81 to $15.97 a share, and since then it has trended higher back above its 50-day and toward its current price of around $18.15 a share.

If you’re bullish on AZPN, I would wait until after it report its results and buy the stock once it breaks out above $18.70 to $18.73 high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 577,726 shares. If we get that move, I expect to see AZPN pop 10% or more since the stock has a decent short interest and it will be trading at new 52-week highs.

I would avoid any long trades or short AZPN after their earnings report if the stock fails to break out and it moves back below its 50-day moving average of $17.36 on high volume. I would target a drop back toward its 200-day at $16.39, or potentially much lower if the bears hammer this stock post-earnings.

Manitowoc Company

An earnings short-squeeze play in the construction and agriculture machinery sector is Manitowoc Company (MTW), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Manitowoc to report revenue of $955.71 million on earnings of 14 cents per share.

If you’re looking for a stock that’s been uptrending strong heading into its earnings report, then you take a strong look at shares of MTW. This stock has more than doubled off its October low of $5.71 since its current price is just over $13 a share.

The current short interest as a percentage of the float for Manitowoc is rather high at 8.1%. That means that out of the 126.77 million shares in the tradable float, 9.87 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.5%, or by about 516,000 shares.

From a technical standpoint, MTW is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has run up big off its October low of $5.71 a share, and now it sets up for a major breakout trade if the company can report results that the bulls’ love.

If you’re bullish on MTW, I would wait until after they report their earnings and buy some shares if it can manage to break out above $13.72 a share on high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 3.4 million shares. If we get that action, then look for MTW to pop 10% or more post-earnings.

I would avoid MTW or get short this stock if after it report its results the stock fails to break out and drops back below its 200-day moving average of $12.75 with volume. I would then add to any short positions once MTW takes out some near-term support at $12.38 with volume. Target a drop back towards its 50-day moving average of $10.48 a share, or much lower if the bears whack this lower post-earnings.

Manitowoc shows up on a December list of 8 Stocks With Biggest Upside in Market Rebound.

Corinthian Colleges

An earnings short-squeeze play in the education complex is Corinthian Colleges (COCO), which is set to release numbers on Wednesday before the market close. This company is a post-secondary education company in operating the U.S. and Canada. Wall Street analysts, on average, expect Corinthian Colleges to report revenue of $415.27 million on earnings of 1 cent per share.

This company failed to beat Wall Street estimates last quarter after topping estimates in the prior quarter. In the first quarter, Corinthian report a net loss of 4 cents per share vs. Wall Street estimates of 2 cents. Two quarters prior, it beat estimates by 2 cents after reporting a profit of 24 cents. Revenue has trended lower for the past three quarters. The company’s loss in the last quarter followed profits in the previous two quarters.

The current short interest as a percentage of the float for Corinthian Colleges is extremely high at 32.4%. That means that out of the 76.93 million shares in the tradable float, 24.95 million are sold short by the bears. The bears have also been increasing their short positions from the last reporting period by 9.1%, or by about 2.08 million shares.

From a technical standpoint, COCO is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a near-term bottom at around $2.06 to $2.10 a share, and since then it has trended higher towards its current price of just over $3.10. This stock is now within range of trigging a big breakout as we move closer to their earnings report.

If you’re bullish on COCO, I would buy some shares after it reports earnings if the stock can manage to break out above $3.20 a share with strong volume. Look for volume that registers near or above its three-month average action of 2.4 million shares. If $3.20 gets taken out before their earnings report, then I would buy the breakout above the daily from Wednesday’s trading session.

A high-volume move on COCO above $3.20 a share should be considered very bullish since the stock has little overhead resistance until $4.90 a share after that price point. I would avoid COCO for an earnings short-squeeze trade if COCO fails to break out post-earnings and if the stock drops below some near-term support at $2.80 with volume.

Cadence Design Systems

My final earnings short-squeeze trade for today is software and programming player Cadence Design Systems (CDNS), which is set to release numbers on Wednesday before the market close. This company develops electronic design automation, software, hardware and silicon intellectual property. Wall Street analysts, on average, expect Cadence Design Systems to report revenue of $300.47 on earnings of 15 cents per share.

If you’re looking for a lower priced earnings short-squeeze play that’s trading close to some key breakout levels, then take a hard look at shares of Cadence Design Systems.

The current short interest as a percentage of the float for Cadence Design Systems stands at 8.2%. That means that out of the 270.01 million shares in the tradable float, 22.25 million shares are sold short by the bears.

From a technical standpoint, CDNS is currently trading right at it 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock has been trading within a sideways trading pattern for the past few months between $9.83 and $11.15 a share. A high-volume move outside of that pattern should setup CDNS for its next big trend.

If you’re bullish on CDNS, I would wait until after it reports earnings and buy the stock if it breaks out above $10.85 and $11.15 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 2.8 million shares. If we get that action, I would then add to any long positions once CDNS takes out its 52-week high of $11.72 with volume.

I would get short or avoid shares of CDNS if after their report the stock fails to break out and then drops below its 50-day ($10.50) and 200-day ($10.11) moving averages with volume. If we get that action, I would then add to any shorts on a volume move below $9.83 to $9.68 a share. Target a drop back into the mid-to-high-8s if the bears hammer this lower post-earnings.

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.

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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.