Stock Quotes in this Article: IMAX, SODA, AWAY, ACHC, VNTV

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 time frame 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 by waiting. That’s why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and 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 for a heavily shorted stock and then jump in and trade the prevailing trend.

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

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SodaStream

My first earnings short-squeeze play is home beverage carbonation systems maker SodaStream (SODA), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect SodaStream to report revenue of $121.54 million on earnings of 39 cents per share.

During the last quarter, SodaStream reported revenue of $112.8 million and GAAP sales were 43% higher than the prior-year quarter’s $78.4 million. Non-GAAP earnings per share were 87 cents per share, and GAAP EPS of 80 cents per share were 60% higher than the prior-year quarter’s 50 cents per share.

The current short interest as a percentage of the float for SodaStream is extremely high at 44.7%. That means that out of the 17.34 million shares in the tradable float, 8.17 million shares are sold short by the bears. This stock sports a high short interest and has a very low tradable float, which can be a lethal combination for a short-squeeze play. If the bulls get the earnings news they’re looking for, then SODA could easily see a monster short-squeeze develop post-earnings.

From a technical perspective, SODA is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares soaring higher from is low of $33.15 to its recent high of $53.99 a share. During that uptrend, shares of SODA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SODA within range of triggering a major breakout trade post-earnings.

If you’re bullish on SODA, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $52.67 to $53.99 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 1.13 million shares. If that breakout triggers, then SODA could easily trend well north of $60 a share post-earnings.

I would simply avoid SODA or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support at $48.87 to its 50-day at $46.91 a share with high volume. If we get that move, then SODA will set up to re-test or possibly take out its next major support levels at $46.16 to $45.36 a share. Any high-volume move below those levels will then put its 200-day at $39.47 into range for shares of SODA.

Vantiv

Another potential earnings short-squeeze trade is integrated payment processor Vantiv (VNTV), which is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect Vantiv to report revenue of $274.10 million on earnings of 34 cents per share.

The current short interest as a percentage of the float for Vantiv is pretty high at 10%. That means that out of the 62.55 million shares in the tradable float, 6.19 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 24.5%, or by about 1.21 million shares. If the sellers are caught leaning too hard into a strong quarter, then shares of VNTV could explode higher post-earnings.

From a technical perspective, VNTV is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways in a consolidation pattern for the last two months and change, with shares moving between $21.88 on the upside and $19.55 on the downside. A high-volume move above the upper-end of that sideways chart pattern could trigger a breakout trade for VNTV post-earnings.

If you’re in the bull camp on VNTV, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $21.67 to $21.88 a share and then once it clears more resistance at $22.15 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 767,898 shares. If that breakout hits, then VNTV will set up to re-test or possibly take out its next major overhead resistance levels at $23.74 to $24.43 a share. Any high-volume move above $24.43 will then push shares of VNTV into new all-time high territory, which is bullish technical price action.

I would simply avoid VNTV or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average at $20.82 a share with high volume. If we get that move, then VNTV will set up to re-test or possibly take out its next major support levels at $19.55 to $18.85 a share.

HomeAway

Another earnings short-squeeze candidate is online marketplace for the vacation rental industry HomeAway (AWAY), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect HomeAway to report revenue of $70.87 million on earnings of 13 cents per share.

If you’re looking for a heavily shorted stock that’s been uptrending strong heading into its quarterly report this week, then make sure to check out shares of HomeAway. This stock is up 18.9% during the last three month, and it's currently trading just three points off its 52-week high of $27.47 a share.

The current short interest as a percentage of the float for HomeAway is extremely high at 26.7%. That means that out of the 43.72 million shares in the tradable float, 11.72 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4%, or by 453,000 shares. If the short-sellers are caught being too aggressive into a strong quarter, then shares of AWAY could easily skyrocket higher post-earnings.

From a technical perspective, AWAY is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last three months, with shares soaring higher from its low of $19.58 to its recent high of $25.56 a share. During that uptrend, shares of AWAY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AWAY within range of triggering a major breakout trade post-earnings.

If you’re bullish on AWAY, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $25.56 to $26.28 a share and then once it clears more resistance at $27.47 to $28 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 533,653 shares. If that breakout triggers, then AWAY will set up to enter new 52-week high-territory, which is bullish price action. Some possible upside targets off that breakout are $34 to $38 a share.

I would avoid AWAY or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support at $24 a share with high volume. If we get that move, then AWAY will set up to re-test or possibly take out its 200-day at $23.14 or its 50-day at $22.66 a share. Any high-volume move below those levels will then put $21.35 to $20.92 into range for shares of AWAY.

Imax

Another earnings short-squeeze prospect is motion picture technologies player Imax (IMAX), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Imax to report revenue of $73.98 million on earnings of 16 cents per share.

If you’re looking for a heavily shorted stock that’s been uptrending strong heading into its earnings report this week, then make sure to take a hard look at shares of Imax. This stock is up 17.3% during the last three month, and it's currently trading about one point off its 52-week high of $26.68 a share.

The current short interest as a percentage of the float for Imax is very high at 25.8%. That means that out of the 55.64 million shares in the tradable float, 14.42 million shares are sold short by the bears. This is an aggressive short interest for a stock with a relatively low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of IMAX post-earnings.

From a technical perspective, IMAX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last two months and change, with shares moving higher from its low of $20.49 to its recent high of $26.18 a share. During that uptrend, shares of IMAX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of IMAX within range of triggering a major breakout trade post-earnings.

If you’re bullish on IMAX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $26.18 to $26.68 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 800,574 shares. If that breakout triggers, then IMAX will set up to enter new 52-week-high territory above $26.68 a share, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $33 a share, or even $38 a share.

I would avoid IMAX or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support levels at $25 to $24 a share with high volume. If we get that move, then IMAX will set up to re-test or possibly take out its next major support level at its 50-day moving average of $23.31 a share. Any high-volume move below its 50-day will then put its 200-day at $22.19 into range for shares of IMAX.

Acadia Healthcare

My final earnings short-squeeze trade idea is inpatient behavioral health care services provider Acadia Healthcare (ACHC), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Acadia Healthcare to report revenue of $110.72 million on earnings of 19 cents per share.

Just recently, RW Baird called Acadia Healthcare one of its top picks following its acquisition of another hospital. The firm cited its above-average EBITDA growth, meaningful capital, deployment opportunities and benign regulatory risks. The firm has an outperform rating on the stock and a $32 a share price target.

The current short interest as a percentage of the float for Acadia Healthcare sits at 7.2%. That means that out of the 28.98 million shares in the tradable float, 2.48 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8%, or by about 182,000 shares. If the sellers are caught pressing too aggressively into a strong quarter, then shares of ACHC could squeeze significantly higher post-earnings.

From a technical perspective, ACHC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways in a consolidation pattern for the last month, with shares moving between $24.18 on the downside and $27.51 on the upside. A high-volume move above the upper-end of that sideways chart pattern will trigger a breakout trade for ACHC post-earnings.

If you’re in the bull camp on ACHC, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $27.10 to $27.51 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 364,559 shares. If that breakout triggers, then ACHC will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $35 a share.

I would simply avoid ACHC or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some near-term support levels at $25.20 to its 50-day at $24.56 a share with high volume. If we get that move, then ACHC will set up to re-test or possibly take out its next major support levels at $24.18 to $23.39 a share. Any high-volume move below $23.39 will then put $22 to $21.26 into range for shares of ACHC.

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 technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.