Stock Quotes in this Article: END, KOG, LIZ, PSS, VOCS

WINDERMERE, Fla. (Stockpickr) -- Short-sellers hate being caught short a stock that produces bullish earnings results. When this happens, we often see 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 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.

 

Liz Claiborne

My first earnings short-squeeze trade idea is apparel and accessories maker Liz Claiborne (LIZ), which is set to report its numbers on Wednesday before the market open. This company designs and markets a portfolio of retail-based brands, including Juicy Couture, Kate Spade, Lucky Band and Mexx. Wall Street analysts, on average, expect Liz Claiborne to report revenue of $477.50 million on earnings of 10 cents per share.

If you’re looking for a stock that’s trading within range of a triggering a big breakout post-earnings, then make sure to take a strong look at shares of Liz Claiborne. This stock is trending very strong and tagging new 52-week highs as we near its earnings report this week.

The current short interest as a percentage of the float for Liz Claiborne is extremely high at 25.6%. That means that out of the 81.71 million shares in the tradable float, 23.92 million shares are sold short by the bears. This is a very high short interest, so if the bulls get the news they’re looking for this stock could explode to the upside.

From a technical perspective, LIZ 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 a recent bottom in October at $4.14 a share. Since hitting that bottom, LIZ has consistently made higher lows and higher highs, which his bullish price action. Now the stock is within range of breaking out post-earnings.

If you’re bullish on LIZ, I would look for long-biased trades following earnings if the stock takes out $10.50 (or its daily high Tuesday if it’s greater than $10.50) with strong volume. Look for volume that’s tracking in close to or above its three-month average of 2,513,880 shares. If we get that action, then look for LIZ to spike 10% to 15% following earnings.

I would avoid LIZ or look for short-biased trades if after its earnings report the stock fails to breakout and then drops below some near-term support at $9.61 to $9.22 (its 50-day) with volume. If we get that action, I would target a drop back towards $8 to $7.50 a share if the bears hammer this lower post-earnings.

Kodiak Oil & Gas

Another potential earnings short-squeeze trade is independent energy player Kodiak Oil & Gas (KOG), which is set to report results on Tuesday after the market close. This company is focused on the exploration, exploitation, acquisition and production of crude oil and natural gas in the U.S. Wall Street analysts, on average, expect Kodiak Oil & Gas to report revenues of $59.86 million on earnings of 9 cents per share.

This is another strong equity that’s trading within range of a big breakout post-earnings. Shares of Kodiak Oil & gas closed Monday at $10.52 a share, which is just 40 cents off its 52-week high of $10.90. The current short interest as a percentage of the float for Kodiak Oil & Gas is pretty high at 11.4%. That means that out of the 199.18 million shares in the tradable float, 28.06 million are sold short by the bears.

From a technical perspective triggering a big breakout, KOG is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock recently found some big buying support at around $8.77 to $8.79 a share. Since buyers stepped in at those levels, the stock has ripped higher towards its current price of $10.50.

If you’re bullish on KOG, I would look for long biased trades after its report if the stock breaks out above $10.90 a share (or its daily high on Tuesday if it’s greater) with volume. Look for volume that’s tracking in close to or above its three-month average action of 4.2 million shares. If we get that high-volume breakout, then I would look for a sharp spike higher considerably after earnings.

I would simply avoid KOG or look for short biased trades if this stock fails to breakout after earnings and then drops below $10 a share with heavy volume. If we get that action, then I would target a drop back towards the 50-day moving average of $9.45 a share, or possibly much lower if the bears whack this down post-earnings.

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

Endeavour

Another earnings short-squeeze trade in the oil and gas complex is Endeavour (END), which is set to release numbers on Wednesday before the market open. This is an independent oil and gas company engaged in the exploration, development and acquisition of energy reserves in the U.S. and U.K. Wall Street analysts, on average, expect Endeavour to report revenue of $16.88 million on a loss of 28 cents per share.

If you’re looking for a stock that’s trading within range of triggering a big breakout post-earnings, then make sure to check out shares of Endeavour. This stock is well off its 52-week high of $16.43 a share, but its trading right below a key technical overhead resistance level as we approach earnings.

The current short interest as a percentage of the float for Endeavour is extremely high at 19.9%. That means that out of the 23.50 million shares in the tradable float, 5.86 million are sold short by the bears. This is a stock with a very high short interest and low float, so if the company can deliver strong earnings and bullish forward guidance it could easily see a massive short-squeeze.

From a technical perspective, END is currently trading above its 50-day moving average, which is bullish. This stock recently formed a perfect triple bottom at around $5.80 to $5.98 a share, and since then has run up to its current price of $11.85. This sharp run-up has now put END within range of breaking out post-earnings.

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If you’re bullish on END, I would look for long biased trades after its report if the stock manages to break out above some near-term overhead resistance at $12.18 a share (or above its daily high Tuesday if it’s greater) with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 528,336 shares. If we get that action, I would then add to any long positions in END if it takes out $13 with volume. Target a run back toward $14 to $16.43 if the bulls gain full control of this stock post-earnings.

I would simply avoid END or look for shortbiased trades if the stock fails to break out after earnings, and then drops below $11.05 to $10.77 a share with volume. I would target a drop back below its 50-day moving average of $9.68 a share if the bears sell this off hard post-earnings.

Endeavour shows up on a recent list of " Stocks With Big Insider Buying."

Collective Brands

One earnings short-squeeze play in the retail apparel space is Collective Brands (PSS), which is set to release numbers on Tuesday after the market close. This company is a producer of compelling lifestyle, fashion and performance brands for footwear and related accessories to consumers worldwide. Wall Street analysts, on average, expect Collective Brands to report revenue of $781.19 million on a loss of 82 cents per share.

This stock is off to a hot start in 2012 with shares up around 20%. Despite that strong start, shares of Collective Brands are still well off its 52-week high of $23.58 as we head towards its earnings report. That said, the stock is within range of triggering a near-term breakout post-earnings.

The current short interest as a percentage of the float for Collective Brands is extremely high at 25.1%. That means that out of the 55.24 million shares in the tradable float, 14.87 million are sold short by the bears. This stock has a massive short interest and a pretty low tradable float. Any good news could easily spark a big short squeeze if the bulls like what they hear.

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From a technical perspective, PSS is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently hit a bottom in November at $11.38 a share, and since then it has run-up towards its current price of $17.24 a share. During that sharp uptrend, the stock has made mostly higher lows and higher highs, which is bullish price action.

If you’re bullish on PSS, I would look for long-biased trades after its report if the stock can manage to break out above some near-term overhead resistance at $18 to $18.61 a share with high-volume. Look for volume that registers close to or above its three-month average action of 1.65 million shares. If we get that action, I would target a run in PSS back toward its $23 to $24 a share, or possibly much higher.

I would simply avoid PSS or look for short-biased trades after its report if the stock fails to break out and then takes out some near-term support at $17.02 to $16.50 a share with volume. Target a drop back toward its 50-day moving average of $15.76 a share or its 200-day moving average of $14.31 a share, if the bears slam this stock post-earnings.

Vocus

My final earnings short-squeeze candidate today is Vocus (VOCS), which is set to release numbers on Tuesday after the close. This company is a provider of cloud-based software for public relations management. Wall Street analysts, on average, expect Vocus to report revenue of $30.23 million on earnings of 22 cents per share.

Shares of Vocus are currently trading at $22.87 a share, which is well off its 52-week high of $33.70 a share as we approach its earnings report. Despite that fact, the stock is within range of a near-term breakout post-earnings if the bulls get the news they’re looking for.

The current short interest as a percentage of the float for Vocus is notable at 6.1%. That means that out of the 18.85 million shares in the tradable float, 1.15 million shares are sold short by the bears. This stock has an extremely low float and decent short interest, so a bullish report could spark a solid short-squeeze.

From a technical perspective, VOCS is currently trading right under its 200-day moving average and above its 50-day moving average, which is neutral trendwise. This stock hit a low in October at $15.61 a share, and since then it has uptrend towards its current price of $23.87. During that uptrend, shares of VOCS have mostly made higher lows and higher highs, which is bullish price action. Now the stock is within range of triggering a big breakout post-earnings.

If you’re bullish on VOCS, I would look for long-biased trades after its earnings report if the stock manages to break out above $23.72 to $24.50 on high-volume. Look for volume that’s tracking in close to or above its three-month average action of 151,715 shares. If we get that high-volume breakout, then look for VOCS to make a run at $30 a share or possibly higher of the bulls gain full control of the stock post-earnings.

I would avoid VOCS or look for short biased trades if after earnings the stock fails to break out and then trades back below its 50-day at $22.01 and below some near-term support at $21.80 a share with high-volume. Target a drop back toward its $21 to $20 a share or possibly lower if the bears sell this stock off hard 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.