Stock Quotes in this Article: ATU, JBL, KKD, MLHR, TIF

WINDERMERE, Fla. (Stockpickr) -- Short-sellers hate being caught short a stock that produces bullish results. 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 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 the stock is acting technically bullish and you have a strong conviction that it is going to rip higher.

With that in mind, here’s a look at several stocks that could experience big short squeezes when they report quarterly earnings this week.

Jabil Circuit

My first earnings short-squeeze trade idea is electronic instrument and controls player Jabil Circuit (JBL), which is set to report its numbers on Tuesday after the market close. This company is a provider of worldwide electronic manufacturing services and solutions. Wall Street analysts, on average, expect Jabil Circuit to report revenue of $4.09 billion on earnings of 58 cents per share.

Wall Street expects Jabil Circuit to report a 7% jump in profits and a 4% rise in fiscal second quarters sales, when it reports on Tuesday. The company has seen its profit trend higher for three straight quarters. Last week, RBC Capital said it conducted channel checks, and it believes that demand for Jabil’s products last quarter will likely exceed the company’s guidance. The firm raised its price target on the stock from $22 to $30.

The current short interest as a percentage of the float for Jabil Circuit is notable at 4.8%. That means that out of the 187.64 million shares in the tradable float, 8.88 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11.9%, or by about 944,000 shares.

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From a technical perspective, JBL is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the past couple months, rising from a recent low of $18.12 to its current price of just over $27 a share. This stock just triggered a breakout trade once it moved above some near-term overhead resistance at $26.50 a share.

If you’re bullish on JBL, I would look for long-biased trades following its earnings if the stock remains above that breakout level of $26.50 a share. If we get that action, then look for JBL to make a run at $30 a share or much higher if the bulls gain full control of this stock post-earnings.

I would avoid JBL or look for short-biased trades if after its earnings report the stock fails to hold above $26.50, and then takes out that level with high-volume. If we get that action, I would target a drop back towards its 50-day moving average of $24.33 a share or possibly lower if the bears hammer this stock lower post-earnings.

Tiffany

Another earnings short-squeeze trade candidate in the specialty retail complex is Tiffany (TIF), which is set to report results on Tuesday before the market open. This company, through its subsidiaries, sells fine jewelry and other items that it manufactures or has been made by others. Wall Street analysts, on average, expect Tiffany to report revenue of $1.19 billion on earnings of $1.42 per share.

This company has been on a roll beating Wall Street estimates the last four quarters in a row and is coming off a quarter in which it beat estimates by 10 cents, reporting a profit of 70 cents vs. a mean estimate of 60 cents per share. Tiffany has registered double-digit year-over-year percentage revenue growth for the past four quarters. Its net income has trended higher for three straight quarters.

The current short interest as a percentage of the float for Tiffany is 3.9%. That means that out of the 114.24 million shares in the tradable float, 4.96 million are sold short by the bears. This isn’t a huge short-interest, but it’s more than enough to spark a decent short covering really if Tiffany delvers what the bulls are looking for.

From a technical perspective, TIF is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently high of $70.59 a share, but has pulled back off that level and moved back below its 200-day moving average of $69.56, with shares trading at around $68.70 a share.

If you’re bullish on TIF, I would look for long-biased trades after its earnings report if this stock breaks out above $70.59 a share with high-volume. Look for upside volume that registers near or well above its three-month average action of 2.24 million shares. If we get that action, then look for TIF to make a run at $75 to $78 a share post-earnings.

I would simply avoid TIF or look for short-biased trades if this stock fails to break out over $70.59 a share, and then drops below some near-term support at $67 with high-volume. If we get that action, I would look for TIF to drop back toward its 50-day moving average of $64.69 a share or possibly lower if the bears beat it down post-earnings.

Tiffany, one of the top-yielding specialty retail stocks, shows up on recent lists of 10 Stocks Owned by the Best Fund Managers and 13 Dividend Stocks to Compete With Buffett.

Krispy Kreme Doughnuts

An earnings short-squeeze trade idea in the retail grocery sector is Krispy Kreme Doughnuts (KKD), which is set to report results on Tuesday after the market close. This company is a retailer and wholesaler of doughnuts and packaged sweets. Wall Street analysts, on average, expect Krispy Kreme to report revenue of $101.29 million on earnings of 6 cents per share.

Krispy Kreme Doughnuts’ revenue has trended higher in each of the last four quarters. Revenue jumped 11.4% in the second quarter from the year earlier, rising 13.6% in the first quarter from last year and 5.7% in the fourth quarter vs. the year-ago period.

The current short interest as a percentage of the float for Krispy Kreme Doughnuts stands at 5.8%. That means that out of the 50.91 million shares in the tradable float, 2.97 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 17.9%, or by about 450,000 shares.

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From a technical perspective, KKD is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently found some buying interest right around its 200-day moving average of $7.77. Since buyers stepped in at that level, the stock has risen to its current price of around $8.30. That move has pushed KKD within range of triggering a big breakout post-earnings.

If you’re bullish on KKD, I would look for long-biased trades after its earnings report if the stock manages to break out above some near-term overhead resistance at $8.55 to $8.77 a share with high volume. Look for upside volume that’s near or well above its three-month average action of 498,652 shares. If we get that action, then look for KKD to make a run at $9.50 to $10 a share or possibly much higher if the bulls spark a short covering rally post-earnings.

I would simply avoid KKD or look for short-biased trades if after earnings this stock fails to break out over $8.55 to $8.77 a share, and then drops back below its 200-day moving average of $7.77 with volume. If we get that action, I would look for a drop back toward $7 to $6.80 a share or possibly lower if the bears slam this stock down post-earnings.

Actuant

A potential earnings short-squeeze play in the basic materials complex is Actuant (ATU), which is set to release numbers on Wednesday before the market open. This company designs, manufactures and distributes a range of industrial products and systems. Wall Street analysts, on average, expect Actuant to report revenue of $368.50 million on earnings of 38 cents per share.

This company has beaten Wall Street estimates for the last three quarters in a row. Last quarter, Actuant reported a net income of 50 cents per share versus the mean estimate of 43 cents per share. The company has registered double-digit year-over-year percentage revenue growth for the past four quarters in a row. During that timeframe, its averaged growth of 32.8%, with the biggest growth reported in the four quarter of last year at 78.1%.

The current short interest as a percentage of the float for Actuant is rather high at 11.9%. That means that out of the 62.53 million shares in the tradable float, 7.45 million are sold short by the bears. If Actuant can manage to report another strong fundamental quarter of earnings growth, then this stock could easily put pressure on the bears that’re currently short it.

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From a technical perspective, ATU is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the past six months, rising from a low of $17.77 to its current price of just over $29 a share. This strong uptrend has now pushed ATU within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on ATU, I would look for long biased trades after its earnings call if the stock manages to break out above some near-term overhead resistance at $29.50 a share with high-volume. Look for volume that’s tracking in close to or above its three-month average volume of 703,141 shares. If we get that action, I would then add to any long positions once ATU takes out its 2011 high of $30.35 with volume.

I would simply avoid long-biased trades in ATU after earnings if this stock fails to break out over $29.50 a share, and then drops below some near-term support at $28 with volume. Target a drop back towards $27 to $25 a share if the bears whack this stock post-earnings.

Herman Miller

One more earnings short-squeeze candidate is furniture and fixtures player Herman Miller (MLHR), which is set to release numbers on Wednesday after the market close. This company engages in the research, design, manufacture, and distribution of interior furniture systems, products, and related services worldwide. Wall Street analysts, on average, expect Herman Miller to report revenue of $409.63 million on earnings of 27 cents per share.

This company reported in-line earnings last quarter, so traders will be looking for a better showing during this quarter. Herman Miller’s profit has trended higher year-over-year by an average of more than threefold over the past five quarters. Revenue has risen for three straight quarters.

The current short interest as a percentage of the float for Herman Miller sits at 4.6%. That means that out of the 57.34 million shares in the tradable float, 2.60 million are sold short by the bears. This isn’t a huge short interest, but it’s more than enough to spike the stock off any bullish news.

From a technical perspective, MLHR 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 $17.99 a share. Since putting in that bottoming pattern, the stock has soared towards its current price of just under $22 a share. This move now puts the stock within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on MLHR, I would look for long-biased trades after its report if the stock can manage to break out above $23.04 to $23.50 a share high-volume. Look for volume that registers close to or above its three-month average action of 389,285 shares. If we get that action, I would target a run in MLHR back towards its next significant overhead resistance level at $27 a share.

I would simply avoid MLHR or look for short-biased trades after its report if the stock fails to break out and then drops below some near-term support at $20.28 a share with high volume. Target a drop back towards $19 to $18 a share or possibly even lower if the bears sell this stock off post-earnings.

To see more potential earnings short squeeze plays, including Fred’s (FRED), NuPathe (PATH) and AAR (AIR), 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.