Stock Quotes in this Article: CIEN, LGF, ROLL, TIVO, TFM

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.

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.

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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 very strong conviction that the stock is going to rip higher, and its acting technically very bullish. Remember, even when you have that conviction and you have done your due diligence, the stock can still get hammered if the street doesn’t like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily-shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out, and then jump in and trade the prevailing trend on a heavily-shorted stock that’s reporting its numbers.

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

 

TiVo

A potential earnings short-squeeze play is broadcasting and cable TV player TiVo (TIVO), which is set to report results on Wednesday after the market close. This company, together with its subsidiaries, provides technology and services for television solutions, including DVRs and connected televisions in the U.S. and internationally. Wall Street analysts, on average, expect TiVo to report revenue of $54.89 million on a loss of 15 cents per share.

During the fourth quarter of the last fiscal year, TiVo swing to a profit of $7.2 million on earnings of 6 cents per share from a loss of $34.4 million on 30 cents per share. Revenue jumped 19.1% to $66.5 million from $55.8 million. TiVo is looking to register its fourth straight quarter of revenue increases when it reports this week. Revenue jumped 18.7% in the second quarter of the last fiscal year and 27.4% in the third quarter of the last fiscal year before rising again in the fourth quarter of the last fiscal year.

The current short interest as a percentage of the float for TiVo is rather high at 9.6%. That means that out of the 120.11 million shares in the tradable float, 11.53 million shares are sold short by the bears. This stock has a decent amount of bears involved in the name, so if TiVo can report solid earnings and bullish guidance then it could see a sizable short squeeze post-earnings.

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From a technical perspective, TIVO is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock formed a double top between February and April at $12.32 to $12.37 a share. After hitting major selling resistance at those levels, this stock plunged to a recent low of $8.80 a share. That selloff has now pushed TIVO into oversold territory since its relative strength index reading is now 28.69. Oversold can always get move oversold, but if TIVO delivers what the bulls are looking for, then it could rebounded sharply post-earnings.

If you’re bullish on TIVO, I would wait until after it releases earnings and target long-biased trades if this stock can manage to move back above some near-term overhead resistance at $9.61 a share with high-volume. Look for volume on that move that’s close to or above its three-month average volume of 2.1 million shares. If we get that action, then I would look to add to any long positions if TIVO can move back above both its 200-day at $10.40 and its 50-day at $10.76 a share with high-volume. Target a run move towards $11.50 to $12 a share or higher if the bulls spark a short-squeeze post-earnings.

I would simply avoid TIVO or look for short-biased trades if after earnings it fails to sustain a move above $9.61, and then drops below some major support levels at $8.80 to $8.67 a share with high-volume. If we get that action, then TIVO could easily drop back toward $7.50 to $7 a share if the bears hammer this down post-earnings.

Lions Gate Entertainment

An potential earnings short-squeeze trade in the motion pictures complex is Lions Gate Entertainment (LGF), which is set to release numbers on Wednesday after the market close. This company engages in the motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, new channel platforms, and digital distribution activities. Wall Street analysts, on average, expect Lions Gate Entertainment to report revenue of $627.72 million on earnings of 25 cents per share.

During the last quarter, Lions Gate Entertainment missed estimates badly by 10 cents, coming in at a net loss of one cent per share versus Wall Street estimates of 9 cents per share. In the second quarter, the company beat estimates by 9 cents. Revenue has been trending lower for the past four quarters. Revenue dropped 21.5% in the second quarter from the year earlier; it dropped 20% in the first quarter from the year-ago quarter and 12.5% in the four quarter of the last fiscal year.

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The current short interest as a percentage of the float for Lions Gate Entertainment stands at 9.9%. That means that out of the 90.85 million shares in the tradable float, 13.68 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12%, or by about 165,000 shares.

From a technical perspective, LGF is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock made a huge run from the start of 2012 with shares soaring from $8.14 to a high of $16.19 a share. After that run, which stopped in late March, shares of LGF have trended lower to a recent low of $11.26 a share, but it has recently rebounded a bit towards its current price of $12.90 a share.

If you’re in the bull camp on LGF, then I would wait until after its report and look for long-biased trades if this stock can manages to sustain its trend above its 50-day moving average of $12.80. If that $12.80 area holds, then I would look to add to any long positions once LGF takes out $13.50 to $14.28 with high volume. Look for volume on that move that’s near or above its three-month average volume of 3.9 million shares. Target a run back toward $15.50 to its 52-week high of $16.19 a share or possibly higher if the bulls can control this stock post-earnings.

I would avoid LGF or look for short-biased trades if the stock fails to hold above its 50-day moving average of $12.80, and then drops below some near-term support at $11.26 a share with high volume. If we get that action, then look for LGF to trend down toward its 200-day moving average of $9.91 a share or possibly to $8.50 if the bears whack this stock down post-earnings.

RBC Bearings

An earnings short-squeeze play in the basic materials complex is RBC Bearings (ROLL), which is set to release numbers on Wednesday before the market open. This company is an international manufacturer and marketer of engineered precision plain, roller and ball bearings. Wall Street analysts, on average, expect RBC Bearings to report revenue of $103.27 million on earnings of 62 cents per share.

If you’re looking for a strong uptrending stock heading into its earnings report, then make sure to check out shares of RBC Bearings. During the last six months, shares of RBC Bearings are up 17%, and the stock is currently trading just two points off its 52-week high of $48.05 a share.

The current short interest as a percentage of the float for RBC Bearings stands at 4.3%. That means that out of the 21.05 million shares in the tradable float, 944,032 are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6%, or by about 53,500 shares. If the bears are caught leaning too hard into this quarter, then shares of RBC Bearings could see a decent short-covering rally.

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From a technical perspective, ROLL is currently trading above both its 50-day and 200-day moving averages, which is bullish. During the last three months, shares of ROLL have been trading in a sideways pattern between $43 on the downside and $48 on the upside. A move outside of that range post-earnings will most likely setup the next major trend for ROLL.

If you’re in the bull camp on ROLL, I would look for long-biased trades if after its report if this stock manages to break out above some near-term overhead resistance at $47 to $48.05 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 84,495 shares. If we get that action, then I would look for ROLL to trade north of $50 a share post-earnings.

I would simply avoid ROLL or look for short-biased trades if the stock fails to trigger that move, and then drops back below some near-term support at $43.77 to $43.11 a share with high-volume. If we get that action, then look for ROLL to re-test its 200-day moving average of $41.67 a share or possibly trend lower if the bears hammer this down post-earnings.

Ciena

Another earnings short-squeeze idea today is communications equipment player Ciena (CIEN), which is set to release numbers on Thursday before the market open. This is a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic. Wall Street analysts, on average, expect Ciena to report revenue of $447.37 million on a loss of 3 cents per share.

Ciena is looking to turn things around this quarter and beat Wall Street estimates after missing estimates for the last two straight quarters. During the last quarter, it reported a loss of 26 cents per share versus an estimate of a loss of 17 cents per share. In the prior quarter, it missed forecast by 2 cents.

The current short interest as a percentage of the float for Ciena is extremely high at 21.1%. That means that out of the 86.14 million shares in the tradable float, 20.28 million are sold short by the bears. This is a very high short-interest on a stock with a relative low float. If Ciena can deliver the results the bulls are looking for, then we could get a large short-squeeze post-earnings.

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From a technical perspective, CIEN is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been beaten-down in the last month from a high of $16.98 to a recent low of $11.44 a share. That large selloff has pushed CIEN into oversold territory since its current relative strength index (RSI) reading is 38.29. Oversold can always get more oversold, but if CIEN can hold above those recent lows, then it could easily see a sharp bounce higher post-earnings.

If you’re bullish on CIEN, I would wait until after its report and look for long-biased trades if this stock takes out its 200-day moving average of $13.57, and then its 50-day moving average of $14.65 a share with high-volume. Look for volume on that move that’s near or above its three-month average volume of 5,124,190 shares. If we get that move, then look for CIEN to tag $16 to $17 a share if the bulls gain full control of this stock post-earnings.

I would simply avoid CIEN or look for short-biased trades if it fails to trigger that move over $13.57 to $14.65 a share, and then drops below some major near-term support at $11.75 to $11.44 a share with high-volume. If we get that action, then I would target a drop back towards $10 a share or lower if the bears spark a decent selloff post-earnings.

Fresh Market

My final earnings short-squeeze trade idea today is specialty retailer in the grocery sector Fresh Market (TFM), which is set to release its numbers on Wednesday before the market open. This company focuses on perishable product categories, which include meat, seafood, produce, deli, bakery, floral, sushi and prepared foods. Wall Street analysts, on average, expect Fresh Market to report revenue of $310.48 million on earnings of 36 cents per share.

This company is looking to beat Wall Street estimates this quarter after missing estimates in the prior two quarters. During the last quarter, Fresh Market missed estimates after reporting a profit of 38 cents per share against an estimate of 39 cents per share. In the quarter before that, it missed Wall Street estimates by one cent. Fresh Market has registered double-digit revenue growth for the past four quarters. During that timeframe, the company has averaged year-over-year revenue growth of 14%.

The current short interest as a percentage of the float for Fresh Market is very high at 15%. That means that out of the 29.69 million shares in the tradable float, 4.13 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 9.3%, or by about 352,000 shares. This is a very high short interest and a low float situation. If Fresh Market can beat estimates and issue bullish forward guidance, then it could easily see a monster short-squeeze post-earning.

From a technical perspective, TFM is currently trading above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been uptrending very strong for most of 2012, with shares soaring from a low of $38.16 to a recent high of $54.97 a share. That said, TFM recently broke that uptrend and moved back below its 50-day moving average of $49.66 a share. A strong report this week could now push this stock back above its 50-day and into its uptrend again.

If you’re bullish on TFM, I would wait until after its report and look for long-biased trades if this stock can manage to break out above $49.94 to $51.74 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 298,108 shares. If we get that action, then look for TFM to re-test its 52-week high of $54.97 and possibly trend even higher.

I would simply avoid TFM or look for short-biased trades if after earnings this stock fails to trade back above its 50-day moving average at $49.66, and then drops below some near-term support at $46.56 a share with heavy volume. If we get that move, then look for TFM to trend down towards its 200-day moving average of $42.78 or possibly much lower if the bears slam this stock post-earnings.

Fresh Market was also featured recently in "5 Stocks That Make for Healthy Investments."

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.