Stock Quotes in this Article: JCOM, NILE, PEET, PLAB, TSLA

WINDERMERE, Fla. (Stockpickr) -- With quarterly earnings season in full swing on Wall Street, it’s time for market-players to create a powerful watch list of stocks due to report numbers that also sport a decent short interest.

Short-sellers hate being caught short a stock that produces bullish results. When this happens, we often see tradable short-squeezes develop as the bears rush to cover their positions to avoid big losses. Even the savviest short-sellers know that it’s not wise to be caught short a stock once a bullish earnings report kicks off 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 trade 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 strong conviction that the stock is going to rip higher, and its acting technically bullish.

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

 

Peet’s Coffee & Tea

My first earnings short-squeeze trade candidate is coffee and tea player Peet’s Coffee & Tea (PEET), which is set to report its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Peet’s Coffee & Tea to report revenue of $103.18 million on earnings of 43 cents per share.

Keybanc Capital analyst Akshay Jagdale recently initiated coverage on this stock with a buy rating and slapped an $80 price target on the shares. This stock is trending very strong heading into their quarterly report since its trading just a few points off its 52-week high of $69.97. Shares of Peet’s also recently broke out above $63.76 to $65 on heavy volume.

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The current short interest as a percentage of the float for Peet’s Coffee & Tea is extremely high at 19.4%. That means that out of the 12.71 million shares in the tradable float, 2.47 million shares are sold short by the bears. The tradable float for Peet’s is very small, and the short interest is large. If this company can deliver what the bulls’ are looking for, then we could easily see a monster short squeeze post-earnings.

From a technical perspective, PEET is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a double bottom in January at $56.89 to $57.06 a share, and since then ran up to its current price of just under $68 a share. This stock is now within range of breaking out to new highs if the company can deliver a bullish earnings report.

If you’re bullish on PEET, I would look for long-biased trades following its report if the stock takes out $69.97 a share with high volume. Look for volume that’s tracking in close to or above its three-month average of 117,361 shares. If that level gets taken out with volume, I would look for a large spike higher of 10% or more since the bulls will be in full control of the stock.

I would only look for short biased trades or avoid PEET if after earnings the stock fails to break out and then drops back below some near-term support at $67.24 a share with volume. I would target a drop back near the 50-day moving average of $61.20 a share if the bears hammer this lower post-earnings.

Tesla Motors

Another potential earnings short-squeeze trade is Tesla Motors (TSLA), which is set to report results on Wednesday after the market close. This company designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components. Wall Street analysts, on average, expect Tesla Motors to report revenue of $38.45 million on a loss of 63 cents per share.

During the last quarter, Tesla reported a net loss of 63 cents per share vs. Wall Street estimates of a loss of 66 cents per share, beating estimates after coming up short in the previous quarter. Their revenue has trended higher for three straight quarters. This stock is trading around three points off its 52-week high of $35 a share as we head into its quarterly report.

The current short interest as a percentage of the float for Tesla Motors is huge at 53.3%. That means that out of the 62.79 million shares in the tradable float, 25.17 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3%, or by about 720,700 shares.

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From a technical perspective, TSLA is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock plunged from its December high of $35 towards its recent low of $22.64 a share. After hitting that low, the stock has rebounded sharply towards its current price of just under $32 a share. The stock is now within range of triggering a breakout post-earnings if the bulls get the news they’re looking for.

If you’re bullish on TSLA, I would wait until after they report its results and look for long-biased trades once it breaks out above $32.90 a share on strong volume. Look for volume that’s tracking in close to or above its three-month average action of 1,068,200 shares. If we get that high-volume breakout, then I would look for TSLA to make run at its 52-week high of $35 to its all-time high of $36.42 a share.

I would simply avoid any long trades in TSLA or look for short-biased trades if this stock fails to breakout post-earnings, and then drops below some near-term support at $31 to $30 a share with volume. If we get that action, I would then add to any short positions once it takes out its 50-day at $29.21 a share with volume. Target a drop back below its 200-day at $27.97 a share if the bears whack this stock down post-earnings.

Blue Nile

Another earnings short-squeeze candidate is Blue Nile (NILE), which is set to release numbers on Wednesday after the close. This is an online retailer of diamonds and fine jewelry. Wall Street analysts, on average, expect Blue Nile to report revenue of $123.17 million on earnings of 42 cents per share.

This company has lacked consistency in regards to its earnings, bouncing between beating and missing Wall Street estimates during the past fiscal year. Blue Nile’s income has trended lower year-over-year by an average of 4.1% over the past five quarters. Its revenue has trended higher for three straight quarters. The stock is trading well off its 52-week high of $59.14 as we approach its quarter earnings report his week.

The current short interest as a percentage of the float for Blue Nile is very large at 34.2%. That means that out of the 13.36 million shares in the tradable float, 4.57 million shares are sold short by the bears. This stock has an extremely low float and monster short interest. If Blue Nile can report bullish earnings and forward guidance, then a large short squeeze could follow.

From a technical perspective, NILE is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since it bottomed at $30.34 in November. During that uptrend, shares of NILE have been mostly making higher lows and higher highs, which is bullish price action. The stock just recently broke out above some near-term overhead resistance $42.23 a share.

If you’re bullish on NILE, I would wait until after they report earnings and only look for long biased trades if the stock manages to hold above that breakout level of $42.32. If the stock can manage to hold above that level, then it has a good chance to short-squeeze back towards $50 a share. Look for upside volume if that level holds that comes in near or above its three-month average action of 255,761 shares.

I would only look for short biased trades or avoid NILE after earnings if it trades back below that breakout level of $42.23 a share on high-volume. If we see that action, I would target a drop back below both its 200-day moving average of $40.94 and 50-day of $39.49. One possibly target zone is $38 to $37 a share if the bears hammer this below those key moving averages post-earnings.

Blue Nile, one of TheStreet Ratings' top-rated online retail stocks, shows up on a list of 6 Retailers Banking on a New CEO in 2012.

J2 Global

One earnings short-squeeze play in the communications services complex is J2 Global (JCOM), which is set to release numbers on Tuesday after the market close. This company provides cloud-based, value-added communication, messaging and data backup services to businesses of all sizes, from individuals to enterprises. Wall Street analysts, on average, expect J2 Global to report revenue of $85.83 million on earnings of 63 cents per share.

This company missed Wall Street estimates last quarter, so investors will be looking for a better showing this time around. J2 Global’s profits have trended higher year over year by an average of 52% over the past five quarters. The stock is trading just three points off its 52-week high of $32.67 as we head into their quarterly earnings report.

The current short interest as a percentage of the float for J2 Global is very high at 21.9%. That means that out of the 44.53 million shares in the tradable float, 9.76 million are sold short by the bears. This is a low-float/high short-interest situation, so if J2 Global can produce bullish results the stock should see a big short squeeze.

From a technical perspective, JCOM is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock found big buying support over the last couple of months and change at around $26 to $26.50 a share. Since finding that support, the stock has run up to its current price of just over $29 a share. That move now sets up JCOM to potentially trigger a big breakout post-earnings.

If you’re bullish on JCOM, I would wait until after its report and look for long-biased trades once it breaks out above $29.87 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 427,523 shares. If we get that action, I would target a run back towards that 52-week high of $32.67, or possibly much higher.

I would only look for short-biased trades or just avoid JCOM if after earnings it fails to breakout above $29.87 a share, and then drops below both its 50-day of $27.83 and 200-day of $28.38 moving averages with volume. If we get that action, target a drop back towards $26 to $25 a share, or possibly much lower if the bears knock this down post-earnings.

J2, one of the top-rated Internet stocks, is also one of the top-yielding Internet stocks.

Photronics

One earnings short-squeeze trade candidate is photography player Photronics (PLAB), which is set to release numbers on Wednesday after the market close. This is a manufacturers of photomasks, which are precision photographic quartz plates containing microscopic images of electronic circuits. Wall Street analysts, on average, expect Photronics to report revenue of $113.89 million on earnings of 9 cents per share.

If you’re looking for a stock that’s within range of a big breakout, then make sure to put shares of Photronics on your trading radar this week.

The current short interest as a percentage of the float for Photronics is rather high at 12.7%. That means that out of the 53.35 million shares in the tradable float, 7.42 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.3%, or by about 502,700 shares.

From a technical perspective, PLAB is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since it hit $4.95 back in November. During that uptrend, the stock has consistently made higher lows and higher highs, which is bullish price action. Now shares of PLAB are within range of triggering a big breakout post-earnings.

If you’re bullish on PLAB, wait until after earnings and look for long-biased trades if the stock breaks out above some near-term overhead resistance at $7.57 to $7.65 a share with high volume. Look for volume that’s tracking in close to or above its three-month average volume of 555,950 shares. If we get that action, I would look for PLAB to make a run at its next significant overhead resistance levels at $8.75 to $10 a share.

I would avoid any long trades or would look for short-biased trades in PLAB if after earnings the stock fails to break out and then drops below both its 50-day of $6.96 and 200-day of $6.62 moving averages with volume. If we get that action, target a drop back toward $6 to $5.50 a share, or possibly lower if the bears pound this stock lower post-earnings.

To see more potential earnings short squeeze plays, including NVIDIA (NVDA), Weight Watchers International (WTW) and C&J Energy Services (CJES), check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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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.