Stock Quotes in this Article: CBOU, ESRX, HLX, HNSN, SKUL

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 the stock is acting technically very bullish and you have a strong conviction that it is going to rip higher.

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

Hansen Medical

My first earnings short-squeeze trade idea is medical equipment and supplies player Hansen Medical (HNSN), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Hansen Medical to report revenue of $6.09 million on a loss of 17 cents share.

The current short interest as a percentage of the float for Hansen Medical is extremely high at 21.9%. That means that out of the 34.57 million shares in the tradable float, 8.66 million shares are sold short by the bears. This stock has a monster short interest and a very low float. A strong earnings report and bullish guidance should easily set this stock off on a large short squeeze.

From a technical perspective, HNSN is currently trading above both its 50-day and 200-day moving averages, which is bullish. That said, the stock did move below its 200-day moving average briefly today but has since rebounded back above it. Shares of HNSN have making lower highs and lower lows for the past few weeks, which is bearish price action.

If you’re bullish on HNSN, I would wait until after its report and look for long-biased trades if this stock breaks out above $3.83 to $4.03 a share with high volume. Look for volume that’s near or well above its three-month average action of 544,015 shares. If we get that action, then look for HNSN to make a run at its next significant overhead resistance levels of $4.46 to $5 a share.

I would simply avoid this stock from the long side if HNSN fails to breakout post-earnings, and then moves back below its 200-day at $3.15 and its 50-day at $2.93 with heavy volume.

I also featured Hansen recently in "8 Stocks Under $10 Moving Higher."

Caribou Coffee

Another potential earnings short-squeeze trade is coffeehouse operator Caribou Coffee (CBOU), which is set to report results on Wednesday after the market close. Wall Street analysts, on average, expect Caribou Coffee to report revenue of $88.30 million on earnings of 13 cents per share.

If you’re looking for a small-cap stock that’s trending very strong heading into its quarterly earnings report, then make sure to take a strong look at shares of Caribou Coffee. This stock is trading within range of its 52-week high of $18.24 as we move close to their report.

The current short interest as a percentage of the float for Caribou Coffee is rather high at 12.4%. That means that out of the 18.10 million shares in the tradable float, 2.47 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7%, or by about 466,700 shares.

From a technical perspective, CBOU is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently found some big buying support at around $12.23 to $12.76 a share. Since buyers stepped in at those levels, the stock took off and trended towards its current price of around $17.30 a share. Now CBOU is trading within range of a big breakout that could hit post-earnings if the company delivers strong results.

If you’re bullish on CBOU, I would wait until after its report and look for long-biased trades if the stock breaks out above some near-term overhead resistance at $18.01 to $18.24 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 239,680 shares. If we get that action, then look for a sharp spike of 10% or more for CBOU post-earnings.

I would avoid CBOU or look for short biased trades after they report if the stock fails to break out and it moves back below some near-term support at $16.54 with high volume. I would target a drop back towards its 50-day moving average of $15.59 a share, or possibly much lower if the bears hammer this down stock post-earnings.

Caribou is also one of Scott Rothbort's Top 5 Beverage Stocks.

Express Scripts

One earnings short-squeeze candidate in the healthcare facilities sector is Express Scripts (ESRX), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Express Scripts to report revenues of $11.60 billion on earnings of 85 cents per share.

This company has seen its net income trend higher for three straight quarters. During the most recent quarter, net income trended higher by 7.7% from the year-ago same quarter. Express Scripts has seen its revenue trend higher for two straight quarters. The stock is trading about eight points off its 52-week high of $60.89 as we approach their earnings report this week.

The current short interest as a percentage of the float for Express Scripts is very high at 20.2%. That means that out of the 482.82 million shares in the tradable float, 90.58 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.2%, or by about 4.47 million shares. If the bears are caught leaning too hard into the quarter, then this stock could skyrocket since the short interest is so high.

From a technical perspective, ESRX is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong since it printed a recent low last October at $34.47 a share. During that uptrend, shares of ESRX have been making mostly higher lows and higher highs, which is bullish price action. Now the stock sets up to break out post-earnings if the bulls get what they want.

If you’re bullish on ESRX, I would wait until after it report earnings and look for long-biased trades if the stock breaks out above some near-term overhead resistance at $53 a share with heavy volume. Look for volume that’s tracking in close to or above its three-month average volume of 6.7 million shares. If we get that action, then look for ESRX to make a run at $57.47 to $60.89 a share.

I would avoid ESRX or look for short biased trades if the stock fails to break out over $53, and then drops below $51 a share with volume. Target a drop back toward its 200-day moving average of $48.70 a share, or possibly much lower if the bears beat this stock down post-earnings on heavy volume.

Express Scripts, one of 8 UBS Stock Picks for 2012, shows up on a recent list of Health Care Stocks Bought and Sold by Hedge Funds. In the fourth quarter, George Soros increased his position in the stock by 240%.

Helix Energy Solutions

One earnings short-squeeze play in the oil well services and equipment complex is Helix Energy Solutions (HLX), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Helix Energy Solutions Group to report revenues of $330.87 million on earnings of 35 cent per share.

This company met Wall Street estimates last quarter after beating them the prior two. During the third quarter, Helix Energy Solutions reported a profit of 43 cents per share vs. a mean estimate of net income of 43 cents per share. In the second quarter, they beat estimates by 21 cents. A year-over-year revenue decline in the third quarter followed a streak of three straight quarters of revenue increases.

The current short interest as a percentage of the float for Helix Energy Solutions Group sits at 7%. That means that out of the 98.05 million shares in the tradable float, 6.83 million are sold short by the bears. The bears have also been increasing their short positions from the last reporting period by 3.4%, or by about 226,400 shares.

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From a technical perspective, HLX is currently trading above both its 50-day and 200-day moving average, which is bullish. This stock recently bounced off its 50-day moving average near $16, and then soared to its current price of just over $19.40 a share. This stock is now within range of triggering a major breakout post-earnings if the company can deliver strong results.

If you’re bullish on HLX, I would look for long-biased trades after it reports earnings if it can manage to break out above some near-term overhead resistance at $19.69 a share with strong volume. Look for volume that registers near or above its three-month average volume of about a million shares. If we get that action, look for HLX to re-test its 52-week high of $21.65 a share, or possibly trend much higher.

I would simply avoid HLX or look for short biased trades if the stock fails to breakout after they report earnings, and then drops below some near-term support at $18 with volume. Target a drop back towards the 50-day moving average of $16.80 a share, or possibly much lower if the bears hammer this stock down post-earnings.

SkullCandy

My final earnings short-squeeze trade is SkullCandy (SKUL), which is set to release numbers on Wednesday after the market close. This company develops and distributes headphones and other audio accessories to retailers throughout the U.S. and to distributors in various countries worldwide. Wall Street analysts, on average, expect SkullCandy to report revenue of $82.51 million on earnings of 43 cents per share.

The current short interest as a percentage of the float for SkullCandy is extremely high at 45.4%. That means that out of the 15.03 million shares in the tradable float, 6.31 million shares are sold short by the bears. This is an incredibly high short interest for a stock with a very low float. Any bullish earnings news should easily set this stock off on a monster short squeeze, if the bulls like what they year.

From a technical perspective, SKUL is currently trading above its 50-day moving average, which is bullish. This stock formed a major bottom a few months ago at around $11.79 to $11.87 a share. After finding massive buying support at those levels, the stock took off and traded higher towards its current price of just above $15 a share. This big run now puts the stock within range of breaking out post-earnings.

If you’re bullish on SKUL, I would wait until after it reports earnings and look for long biased trades if it breaks out above $15.75 a share with high volume. Look for volume that’s tracking in close to or above its three-month average volume of 423,056 shares. If we get that action, I would then add to any long positions once SKUL takes out more overhead resistance at $16.24 a share. Target a run towards $17.50 to $19.75 a share if the bulls gain control of this stock post-earnings.

I would simply avoid SKUL or look for short-biased trades if it fails to break out above $15.75 post-earnings, and then drops below some near-term support at $14.68 on heavy volume. If we get that action, target a drop back towards its 50-day moving average of $13.49 a share, or much lower if the bears hammer this post-earnings.

I also featured SkullCandy recently in "8 Stocks Rising on Huge Volume."

To see more potential earnings short squeeze plays, including LodgeNet Interactive (LNET), NuVasive (NUVA) and MercadoLibre (MELI), 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.