Stock Quotes in this Article: CRZO, QCOR, UNXL, VVUS, GRPN

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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Questcor Pharmaceuticals

My first earnings short-squeeze play is biopharmaceutical player Questcor Pharmaceuticals (QCOR), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Questcor Pharmaceuticals to report revenue of $142.58 million on earnings of $1 per share.

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Just last week, Mizuho upgraded Questcor ahead of its earnings report this week following checks that indicate improved fundamentals and reduced reimbursement concerns. The firm raised its price target to $41 per share.

The current short interest as a percentage of the float for Questcor Pharmaceuticals is extremely high at 45%. That means that out of the 49.77 million shares in the tradable float, 25.93 million shares are sold short by the bears. This is a big short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of QCOR post-earnings.

From a technical perspective, QCOR is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock recently bounced strong right off its 50-day moving average of $27.30 a share and that move is quickly pushing it within range of triggering a near-term breakout trade post-earnings.

If you’re bullish on QCOR, 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 at $31.50 a share and then once it takes out its 200-day moving average of $33.93 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.6 million shares. If that breakout triggers, then QCOR could easily trend well north of $40 a share post-earnings.

I would simply avoid QCOR 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 its 50-day moving average of $27.30 a share with high volume. If we get that move, then QCOR will set up to re-test or possibly take out its next major support levels at $24.75 to $24.38 a share. Any high-volume move below those levels will then put $21.37 into range for shares of QCOR.

Vivus

Another potential earnings short-squeeze trade is biopharmaceutical player Vivus (VVUS), which is set to release its numbers on Monday after the market close. Wall Street analysts, on average, expect Vivus to report revenue of $3.09 million on a loss of 44 cents per share.

If you’re looking for a heavily shorted stock that’s been beaten-down by the sellers ahead of its earnings report this week, then check out shares of Vivus has been hammered during the last six months, with shares down by 41%.

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The current short interest as a percentage of the float for Vivus is extremely high at 24%. That means that out of the 82.19 million shares in the tradable float, 24.02 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.7%, or by about 405,000 shares. If the sellers are caught leaning too hard into a bullish quarter, then shares of VVUS could see a decent short-squeeze post-earnings.

From a technical perspective, VVUS is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trading sideways for the last month and change, with shares moving between $11.89 on the downside and $13.96 on the upside. A high-volume move above the upper-end of that recent range could trigger a near-term breakout trade for shares of VVUS post-earnings.

If you’re in the bull camp on VVUS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day at $13.23 a share and then once it clears more near-term overhead resistance levels at $13.96 to $15.54 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 4.14 million shares. If that breakout hits, then VVUS will set up to re-test or possibly take out its 200-day moving average of $18.99 a share.

I would simply avoid VVUS or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at $12.14 to $11.89 a share with high volume. If we get that move, then VVUS will set up to re-test or possibly take out its next major support levels at $10.32 to $9.86 a share.

Uni-Pixel

Another potential earnings short-squeeze candidate is performance engineered film maker Uni-Pixel (UNXL), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Uni-Pixel to report revenue of $80,000 on a loss of 25 cents per share.

If you’re looking for a heavily shorted stock with a strong uptrend heading into its earnings report this week, then check out shares of Uni-Pixel. This stock is up a whopping 183% during the last three month, and it's currently trading around 2 points off its 52-week high of $22.38 a share.

The current short interest as a percentage of the float for Uni-Pixel is extremely high at 28.4%. That means that out of the 8.6 million shares in the tradable float, 2.47 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 17.1%, or by 359,000 shares. If the short-sellers are caught pressing their bets too aggressively into a bullish quarter, then we could see a solid short-covering rally for UNXL post-earnings.

From a technical perspective, UNXL 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 from its low of $10.24 to its recent high of $22.38 a share. During that uptrend, shares of UNXL have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of UNXL within range of triggering a major breakout trade post-earnings.

If you’re bullish on UNXL, 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 to $22.38 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 686,158 shares. If that breakout triggers, then UNXL will set up to enter new 52-week high territory, which is bullish price action. Some possible upside targets off that breakout are $25 to $30 a share.

I would avoid UNXL 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 $18.40 to $16.60 a share with high volume. If we get that move, then UNXL will set up to re-test or possibly take out its 50-day moving average of $15.32 a share. Any high-volume move below its 50-day will then put $14.80 to $12.53 into focus for shares UNXL.

Groupon

Another earnings short-squeeze prospect is Internet daily deal provider Groupon (GRPN), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Groupon to report revenue of $639.59 million on earnings of 3 cents per share.

Just recently, Piper Jaffray analyst Gene Munster upgraded Groupon to overweight from neutral saying that the coupon provider’s international business trends are improving and the rebound should cause the company to increase its revenue guidance for the quarter ending in March. Munster raised his price target on the stock to $8 from $5.50 a share.

The current short interest as a percentage of the float for Groupon is very high at 14.2%. That means that out of the 222.41 million shares in the tradable float, 36.73 million shares are sold short by the bears. Any bullish earnings news could easily spark a solid short-covering rally for shares of GRPN post-earnings.

From a technical perspective, GRPN 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 four months, with shares soaring higher from its low of $2.60 to its recent high of $6.17 a share. During that uptrend, shares of GRPN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GRPN within range of triggering a major breakout trade post-earnings.

If you’re bullish on GRPN, 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 at $6.17 a share and then once it takes out its 200-day moving average at $6.28 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 15.25 million shares. If that breakout triggers, then GRPN will set up to re-fill its previous gap down zone from last August that started at $8.05 a share. Any high-volume move above $8.05 will then put $9 to $10 into range for shares of GRPN.

I would avoid GRPN or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support at $5.53 a share and then below its 50-day at $5.21 a share with high volume. If we get that move, then GRPN will set up to re-test or possibly take out its next major support levels at $5.03 to $4.79 a share.

Carrizo Oil & Gas

My final earnings short-squeeze trade idea today is energy player Carrizo Oil & Gas (CRZO), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Carrizo Oil & Gas to report revenue of $107.11 million on earnings of 34 cents per share.

During the last quarter, Carrizo Oil & Gas reported revenue of $105.9 million and GAAP reported sales were 86% higher than the prior-year quarter’s $51.7 million. Non-GAAP EPS was 44 cents per share and gross margin was 89% or 570 basis points better than the prior-year quarter.

The current short interest as a percentage of the float for Carrizo Oil & Gas is pretty high at 14.8%. That means that out of the 36.64 million shares in the tradable float, 5.44 million shares are sold short by the bears. If the bulls get the earnings news they’re looking for, then shares of CRZO could easily see a solid short-squeeze post-earnings.

From a technical perspective, CRZO is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways for the last four months, with shares moving between $19.47 on the downside and $23.04 on the upside. A high-volume move above the upper end of that sideways chart pattern could easily trigger a breakout trade for CRZO post-earnings.

If you’re in the bull camp on CRZO, 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 at $23.04 a share and then once it clears its 200-day at $23.50 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 873,753 shares. If that breakout triggers, then CRZO will set up to re-test or possibly take out its next major overhead resistance levels at $26 to $27 a share.

I would simply avoid CRZO or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 50-day of $21.43 a share and then once it takes out more support at $20.15 to $19.47 a share with high volume. If we get that move, then CRZO will set up to re-test or possibly take out its 52-week low at $19.04 a share, which is bearish technical price action.

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.