Stock Quotes in this Article: BRLI, CIEN, OVTI, TIVO, P

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.

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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 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.

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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

My first earnings short-squeeze trade idea today is TiVo (TIVO), which is set to release numbers on Wednesday after the market close. This company is a developer and provider of software and technology that enables the search, navigation and access of content across sources, including linear television, on-demand television, and broadband video. Wall Street analysts, on average, expect TiVo to report revenue of $54.32 million on a loss of 24 cents per share.

This company missed Wall Street estimates last quarter after they reported a loss of 17 cents per share versus estimates of a net loss of 15 cents per share. During the first quarter, TiVo reported a loss of $20.8 million from a profit of $139 million a year ago, missing Wall Street expectations. Revenue rose 48.1% to $67.8 million from $45.8 million. This company has averaged year-over-year revenue growth of 28.3% over the last four quarters.

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The current short interest as a percentage of the float for TiVo is pretty high at 9.6%. That means that out of the 122.5 million shares in the tradable float, 11.73 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2%, or by about 227,000 shares.

From a technical perspective, TIVO is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock formed a triple bottom back in June and July at $7.75, $7.76 and $7.81 a share. After forming that bottom, this stock broke out back above its 50-day moving average and hit a recent high of $9.48 a share. During that sharp move higher, shares of TIVO have been making higher lows and higher highs which is bullish price action. That move has now pushed TIVO within range of triggering a near-term breakout trade.

If you’re bullish on TIVO, then I would wait until after they report earnings and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance levels at $9.48 to $9.89 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1,925,340 shares. If we get that breakout, then look for TIVO to re-test and possibly take out its next significant overhead resistance level at $11 to $12 a share post-earning.

I would simply avoid TIVO or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves back below its 50-day moving average of $8.51 a share with high volume. If we get that move, then TIVO will likely re-test and possibly take out some major support levels at $8 to $7.75 a share. Any high-volume move below $7.75 a share would be bearish, since it would mean TIVO has entered new 52-week-low territory.

Pandora Media

Another potential earnings short-squeeze play is Internet radio player Pandora Media (P), which is set to release its numbers on Wednesday after the market close. The company’s service enables its listeners to create up to 100 personalized stations. Pandora generates revenue from advertising and also offers a subscription service to listeners. Wall Street analysts, on average, expect the comapny to report revenue of $100.94 million on a loss of 3 cents per share.

Wedbush Securities recently said it’s maintaining its outperform rating on Pandora Media and its 12-month price target of $14. The firm said it expects Pandora Media’s second-quarter results to come in above the high end of guidance, and it expects management to raise fiscal-year 2013 guidance.

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The current short interest as a percentage of the float for Pandora Media is extremely high at 28.2%. That means that out of the 96.22 million shares in the tradable float, 28.88 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.6%, or by about 3.22 million shares. If the bears are caught leaning too hard into this quarter, then we could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, P is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been trading range bound for the past two months, with shares trending between $9 on the downside and $11.24 on the upside. A move outside of that range post-earnings will likely setup the next major trend for P.

If you’re in the bull camp on P, then I would wait until after they report earnings and look for long-biased trades if this stock triggers a break out above some near-term overhead resistance at $10.17 to $11.24 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 2,955,400 shares. If we get that action, then P will have a great chance of re-testing and possibly taking out its next major overhead resistance levels at $12.11 to $12.30 a share post-earnings.

I would simply avoid P or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then takes out some key near-term support levels at $9.17 to $9 a share with heavy volume. If we get that move, then P will likely re-test and possibly take out its next major support levels at $8.50 to $7.83 a share. Keep in mind that any high-volume move below $7.83 will be very bearish since it will push P into all-time low territory.

For another take on Pandora, it shows up on a list of 5 Volatile Stocks to Buy More Of.

OmniVision Technologies

One potential earnings short-squeeze trade is semiconductor player OmniVision Technologies (OVTI), which is set to release numbers on Thursday after the market close. This company designs, develops and markets integrated and semiconductor image-sensor devices. Wall Street analysts, on average, expect OmniVision Technologies to report revenue of $243.77 million on earnings of 22 cents per share.

If you’re looking for a strong trending heavily-shorted technology stock heading into its earnings report this week, then make sure to check out shares of OmniVision Technologies. This stock has exploded to the upside in 2012, with shares up over 30%. Shares of OmniVision Technologies are trading just four points off its 52-week high of $21.11 a share as we approach its earnings report.

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The current short interest as a percentage of the float for OmniVision Technologies is very high at 15.8%. That means that out of the 41.77 million shares in the tradable float, 8.27 million shares are sold short by the bears. This is a large amount of bears in involved in a stock with a relatively low float. If the bulls get the news they’re looking for, then we could easily see a sizable short-squeeze develop post-earnings.
From a technical perspective, OVTI is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a major bottom back in July at around $12 to $11.82 a share. After forming that bottom, shares of OVTI skyrocketed to its current price of around $16 a share. During that sharp move higher, shares of OVTI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed OVTI within range of triggering a major breakout trade post-earnings.

If you’re bullish on OVTI, then I would wait until after they report earnings and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $16.44 to $17.57 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.2 million shares. If we get that move, then look for OVTI to re-test and possibly take out its next major overhead resistance levels at $19.64 to $20.36 a share post-earnings.

I would avoid OVTI or look for short-biased trades if after earnings it fails to trigger that breakout, and then moves below its 200-day moving average of $15.02 a share with heavy volume. If we get that action, then OVTI will setup to re-test and possibly take out its 50-day moving average of $13.78 a share post-earnings.

Bio-Reference Laboratories

One potential earnings short-squeeze trade is health care facilities player Bio-Reference Laboratories (BRLI), which is set to release numbers on Thursday before the market open. This company is engaged in providing laboratory testing services to customers in the greater New York metropolitan area as well as in other states. Wall Street analysts, on average, expect Bio-Reference Laboratories to report revenue of $173.67 million on earnings of 43 cents per share.

If you’re looking for a strong trending heavily-shorted healthcare stock ahead of its earnings report this week, then make sure to take a hard look at shares of Bio-Reference Laboratories. This stock has been on fire so far in 2012, with shares exploding higher by over 70%. As we get close to its earnings report, shares of BRLI are trending just three points off its 52-week high of $30.15 a share.

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The current short interest as a percentage of the float for Bio-Reference Laboratories is extremely high at 25.1%. That means that out of the 24.47 million shares in the tradable float, 6.13 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.6%, or by about 154,000 million shares. If the bears are pressing their luck in front of this quarter, and they end up being wrong, then we could easily see a monster short-squeeze since this company’s float is very small.

From a technical perspective, BRLI is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending very strong for the last three months, with shares exploding higher from a low of $18.29 to its recent high of $30.15 a share. During that sharp move higher, shares of BRLI have been mostly making higher lows and higher highs, which is bullish technical price action. That move has pushed BRLI within range of triggering a major breakout trade post-earnings.

If you’re in the bull camp on BRLI, then I would wait until after they report earnings and look for long-biased trades if this stock holds its trend above $26.08 to its 50-day moving average of $26.75 a share with strong upside volume flows. I would consider any upside volume day that registers near or above its three-month average action of 241,020 shares as bullish. If BRLI can hold that trend, then this stock has a great chance of re-testing and possibly taking out its 52-week high of $30.15 a share post-earnings.

I would simply avoid BRLI or look for short-biased trades if after earnings the stock fails to hold that trend, and then takes out that major near-term support level at $26.08 a share with high volume. If we get that move, then BRLI will setup to re-test and possibly take out its next major support level at $24.58 a share post-earnings. It’s possible that BRLI could drop back towards its 200-day moving average of $21.23 a share if those major support levels are taken out post-earnings.

Ciena

My final earnings short-squeeze play today is Ciena CIEN, which is set to release numbers on Thursday before the market open. This company 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 $473.54 million on a loss of 2 cents per share.

On Monday, Needham reiterated its buy rating on shares of Ciena and raised its price target to $19 per share from its previous target of $16 per share. This stock is trending very strong heading into its report this week, with shares up around 40% so far in 2012. Shares of Ciena are trending just two points off its 52-week high of $18.39 a share as we near its earnings report.

The current short interest as a percentage of the float for Ciena is extremely high at 26%. That means that out of the 97.09 million shares in the tradable float, 25.10 million are sold short by the bears. This is a very high short interest on a stock that’s trending strong into its report. Any bullish earnings news could easily spark a solid short-covering rally post-earnings.

From a technical perspective, CIEN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a major bottom back in May at around $11.44 to $11.65 a share. After marking that bottom, shares of CIEN exploded higher and hit a recent high of $18.39 a share. During that monster move, shares of CIEN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed CIEN within range of triggering a major breakout trade post-earning.

If you’re bullish on CIEN, then I would wait until after they report earnings and look for long-biased trades if it can manage to trigger a break out above some near-term overhead resistance at $17.26 to $17.85 a share and then above its 52-week high of $18.39 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 6,005,590 shares. If we get that move, then CIEN will have a great chance of heading well north of $20 a share post-earnings.

I would simply avoid CIEN or look for short-biased trades after earnings if it fails to trigger that breakout, and then moves back below its 50-day moving average of $16.03 a share with heavy volume. If we get that action, then CIEN will setup to re-test and possibly take out its 200-day moving average of $14.60 a share 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.