Stock Quotes in this Article: NTRI, OCZ, SIRI, UBNT, SAVE

 WINDERMERE, Fla. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. 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 – buy only if you have a very strong conviction that the stock is going to rip higher, and its acting technically very bullish.

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

OCZ Technology

My first earnings short-squeeze play today is OCZ Technology (OCZ) which is set to release its numbers on Tuesday after the market close. This company is a provider of high performance solid state drives and memory modules for computing devices and systems. Wall Street analysts, on average, expect OCZ Technology to report revenue of $112.27 million on earnings of 2 cents per share.

Recently, Piper Jaffray said the recent pullback in shares of OCZ Technology was due to concerns around NAND pricing and gross margin targets. Piper views the rationales behind the concerns as illogical and reiterated its overweight rating on the stock. Regardless of whether it's rational, shares of OCZ have been beaten down big time heading into its quarter, with shares 32.9% in the past three months.

The current short interest as a percentage of the float for OCZ Technology is extremely high at 36.9%. That means that out of the 49.40 million shares in the tradable float, 23.19 million are sold short by the bears. The bears have also increased their bets from the last reporting period by 10.6%, or by about 2.22 million shares.

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From a technical perspective, OCZ is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has plunged since it printed a recent high of $10.05 in February to a low of $5.41 a share. That move has pushed OCZ into oversold territory since its current relative strength index reading is 33.93. This creates the possibility of monster bounce in this stock post-earnings if the company can report a decent quarter and issue bullish forward guidance.

If you’re bullish on OCZ, I would wait until after its report and look for long-biased trades if this stock can manage to hold above its recent low of $5.41 a share and then trigger a near-term breakout above to $6.04 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.4 million shares. If we get that action, then OCZ could easily see a short-covering rally back towards its 200-day moving average of $7.07 or its 50-day moving average of $7.48 or possibly much higher.

I would simply avoid OCZ or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below that near-term support at $5.41 a share with heavy volume. If we get that action, then OCZ could be at risk of dropping back below it next major support level at $4.14 a share if the bears spark a major selloff post-earnings.

Ubiquiti Networks

An earnings short-squeeze candidate in the communications equipment complex is Ubiquiti Networks (UBNT), which is set to report results 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 revenues of $90.49 million on earnings of 27 cents per share.

If you’re looking for a heavily-shorted technology stock that’s trading very close to its 52-week and all-time high heading into its earnings report, then make sure to check out shares of Ubiquiti Networks. This stock has been a monster performer so far in 2012, with shares up over 77% so far.

The current short interest as a percentage of the float for Ubiquiti Networks is extremely high 77.5%. That means that out of the 8.19 million shares in the tradable float, 6.32 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13.7%, or by about 760,000 shares. This stock has the potential for an explosive earnings short-squeeze since the float is so small and the short interest is so high.

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From a technical perspective, UBNT is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, from a low of $17.33 to a recent high of $35.32 a share. During that move, shares of UBNT have consistently made higher lows and higher highs, which is bullish technical price action. That move has now put UBNT within range of triggering a major breakout trade post-earnings.

If you’re bullish on UBNT, I would wait until after it reports earnings and look for long-biased trades if this stock can manage to break out above $34.49 to $35.32 a share with high-volume. Look for volume on that move that registers near or well above its three-month average action of 356,952 shares. If we get that action, I would look for UBNT to hit $40 a share if the bulls gain full control of this stock post-earnings.

I would simply avoid UBNT or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then moves back below its 50-day moving average of $29.40 a share with high-volume. If we get that action, then look for UBNT to drop down towards $27 to $24 a share post-earnings if the bears hammer this lower.

Ubiquiti was also featured recently in "7 Stocks With Relative Strength to Beat the Market."

Sirius XM Radio

A potential earnings short-squeeze play in the broadcasting and cable TV complex is Sirius XM Radio (SIRI), which is set to release numbers on Tuesday before the market open. This company broadcasts its music, sports, entertainment, comedy, talk, news, traffic and weather channels in the U.S. on a subscription fee basis through its two satellite radio systems. Wall Street analysts, on average, expect Sirius XM Radio to report revenues of $803 million on earnings of 2 cents per share.

During the last quarter, Sirius XM Radio reported a profit of 1 cent per share vs. a mean estimate of net income of 1 cent per share. This follows two consecutive quarters of beating expectations. This company is looking to report its fifth-straight quarter of top-line revenue growth this quarter.

The current short interest as a percentage of the float for Sirius XM Radio stands at 7.6%. That means that out of the 3.66 billion shares in the tradable float, 285.02 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-squeeze post-earnings if Sirius XM Radio can beat and raise its guidance.

From a technical perspective, SIRI is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last six months, from a low of $1.61 to a recent high of $2.41 a share. That move has pushed the stock within range of triggering a big breakout trade post-earnings.

If you’re a bull on SIRI, I would wait until after its report and look for long-biased trades if this stock can manage to break out above $2.27 to $2.44 a share with high volume. Look for volume on that move that’s near or well above its three-month average action of 51,946,800 shares. If we get that move, then I look for SIRI to make a run at $3 to $3.50 a share post-earnings.

I would simply avoid SIRI if it fails to trigger that breakout post-earnings and then drops back below its 50-day moving average of $2.25 a share with heavy volume.

Sirius, one of Blue Ridge Capital's holdings, shows up on a list of Consumer Discretionary Stocks Bought and Sold by Hedge Funds in the most recently reported quarter.

Spirit Airlines

One earnings short-squeeze trade idea in the airline sector is Spirit Airline (SAVE), which is set to release numbers on Tuesday before the market open. This airline provides services principally throughout the domestic U.S., the Caribbean and Latin America. Wall Street analysts, on average, expect Spirit Airlines to report revenue of $303.35 million on earnings of 34 cents per share.

Wall Street analysts are looking for a 42% jump in earnings and a 30% jump in revenue when Spirit Airlines reports earnings this week. This stock is trending very strong heading into its report, with shares trading very close to its 52-week high of $24.23 a share.

The current short interest as a percentage of the float for Spirit Airlines sits at 2.9%. That means that out of the 30.73 million shares in the tradable float, 1.45 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 21.8%, or by about 260,000 shares. This isn’t a huge short interest, but the bears have been pressing their bets heading into the quarter. A solid report could spark a decent short-covering rally if the bears are being too aggressive in the short-term.

From a technical perspective, SAVE is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been in a prefect uptrend for the last three months, with share soaring from a low of $13.90 to a recent high of $24.23 a share. This recent strength puts SAVE within range of printing a new all-time high off of a bullish earnings report.

If you’re bullish on SAVE, then I would consider long-biased trades after they report earnings if this stock can print a new all-time high on heavy volume. Look for volume on that move that’s near or well above its three-month average action of 694,125 shares. If we get that action, then look for SAVE to continue its uptrend towards $30 a share.

I would simply avoid SAVE or look for short-biased trades if the stock fails to print a new all-time high, and then drops back below some near-term support at $23 a share with heavy volume. If we get that action, then look for SAVE to re-test its 50-day moving average of $20.48 a share.

I also featured Spirit in "8 Stocks Rising on Monster Volume."

NutriSystems

My final earnings short-squeeze play today is NutriSystems (NTRI), which is set to release numbers on Tuesday after the market close. This company is a provider of a weight management system based on a low-calorie, portion-controlled, prepared meal program, government, and industrial markets worldwide. Wall Street analysts, on average, expect NutriSystems to report revenue of $133.98 million on a loss of 8 cents per share.

If you’re looking for a heavily-shorted under-$15 stock that’s trading very close to a big breakout trade heading into its earnings report, then make sure to check out shares of NutriSystems. Sidoti recently initiated this stock with a buy rating and a $16 per share price target. If this stock can manage to breakout post-earnings, that target could easily get hit.

The current short interest as a percentage of the float for NutriSystems is very high at 20.4%. That means that out of the 26.30 million shares in the tradable float, 5.29 million shares 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 273,000 shares.

From a technical perspective, NTRI is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock plunged form its January high of $15.30 to a recent low of $10.05 a share. After hitting that low, this stock has been trading sideways between $10.50 and $11.70 a share. A move outside of that range post-earnings will likely setup the next major trend for NTRI.

If you’re bullish on NTRI, I would wait until after it reports earnings and look for long-biased trades if this stock can trigger a breakout above $11.70 to $11.93 a share with high-volume. Look for volume on a move above those levels that registers near or well above its three-month average action of 759,446 shares. If we get that move, look for NTRI to trend up towards $14 to $16 a share post-earnings.

I would simply avoid NTRI or look for short-biased trades post-earnings if this stock fails to trigger that breakout, and then moves back below its 50-day moving average of $11.13 a share with high-volume. A high-volume move back below its 50-day moving average should setup NTRI to re-test its recent low of $10.05 a share and possibly move lower if the bears hammer this 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.