Stock Quotes in this Article: ASYS, CNQR, ZOOM, QIHU, ZLTQ

WINDERMERE, Fla. (Stockpickr) -- With earnings season under way on Wall Street, it’s time for market-players to create a powerful watch list of stocks due to report numbers that are also heavily shorted by the bears.

Short-sellers hate being caught short a stock that produces earnings that please the bulls. When this happens, we often see 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.

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    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.

    Of course, sometimes the stock is going to be in such high demand that by waiting 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 extremely bullish technically.

    Here’s a look at a number of stocks that could experience big short squeezes when they report earnings this week.

    Zeltiq Aesthetics

    My first earnings short-squeeze idea is medical technology company Zeltiq Aesthetics (ZLTQ), which is set to report its numbers on Wednesday before the market open. There are currently no analyst estimates for Zeltiq Aesthetics since the company just came public on October.

    This stock sets up perfectly as an earnings short-squeeze trade because shares are trading very close to a major breakout as we approach their quarterly report. A solid report could easily spark that breakout, so make sure to have this name on your earnings trading radar this week.

    >>5 Stocks Setting Up to Break Out

    The current short interest as a percentage of the float for Zeltiq Aesthetics is notable at 8.6%. That means that out of the 7.55 million shares in the tradable float, 686,859 shares are sold short by the bears. This small float and decent short interest is the exact recipe that can lead to a big short squeeze if the bulls get what they are looking for.

    From a technical standpoint, this has a very short trading history. Its low is $13.32, and its high is $17. The stock broke out once in November above some past overhead resistance at $16.03 and then ran up to that high of $17.41. With the stock currently trading at $16.30, it now sets up again to breakout off a solid earnings report.

    If you’re bullish on this stock, I would look to get long after they report their results if the stock breaks out above $17.41 with strong volume. Look for volume that’s tracking in close to or above its three-month average action of 391,672 shares. If we get that high-volume breakout post-earnings, then look for this stock to make a 10% to 20% spike higher. I think the breakout will spark a big move since the stock will be entering new high territory, and since its float is small and short interest is decent.

    Simply avoid trading this stock from the long side altogether if we fail to see that high-volume breakout after they have reported their results to the street.

    Zoom Technologies

    Another possible earnings short-squeeze trade is leading China-based maker of mobile phones and related products Zoom Technologies (ZOOM), which is set to report results on Tuesday after the market close.. Wall Street analysts, on average, expect Zoom Technologies to report revenue of $99.72 million on earnings of 32 cents per share.

    If you’re looking for an under-$5 stock that could pop off a solid earnings report and guidance, then make sure to keep Zoom Technologies on your earnings trading radar.

    The current short interest as a percentage of the float for Zoom Technologies stands at 6.7%. That means that out of the 10.06 million shares in the tradable float, 552,833 shares are sold short by the bears. This stock has a very small float and a decent short interest. That said, we are going to need to see very solid results to kick off a short squeeze since this is a very speculative penny stock.

    >>3 Stocks Under $5 Trading at Huge Discounts

    From a technical standpoint, this stock is currently below its 50-day and 200-day moving averages, which is bearish. This stock recently spiked huge off its October low of $1.10 to a recent high of $2.50 in a very short timeframe. Since that big spike, the stock has slide back below its 50-day moving average and the selling volume has been picking up. That said, the stock still is holding above some short-term support zones near $1.55 to $1.50.

    If you’re bullish on Zoom, I would wait until after it reports earnings and buy the stock if $1.50 holds and it starts to move back above its 50-day moving average of $1.87 with volume. Look for volume that’s tracking in close to or above its three-month average action of 74,500 shares. If this stock can sustain a move above $1.87 with volume, then I would add to any long position once $2.14 is taken out. Target a run back toward $2.50 if the bulls step in and buy this name post-earnings.

    I would avoid this stock as an earnings short-squeeze play altogether if it fails to get back above the 50-day after earnings, or if it fails to hold that previous support at $1.50.

    Concur Technologies

    An earnings short-squeeze idea in the software and programming complex is on-demand employee spend management solutions provider Concur Technologies (CNQR), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Concur Technologies to report revenue of $94.65 million on earnings of 24 cents per share.

    This stock is setting up technically to break out if the company can report solid earnings and bullish guidance that the bulls approve of. Any post-earnings breakout could set this name up to challenge its all-time high of $58.19.

    The current short interest as a percentage of the float for Concur Technologies is an extremely large 16%. That means that out of the 52.04 million shares in the tradable float, 7.08 million are sold short by the bears. This is a very large short interest, so if you any strength in the stock off of solid earnings and guidance could spark a giant short squeeze.

    From a technical standpoint, this equity is currently trading above its 50-day and 200-day moving averages, which is bullish. This stock dropped big off its July high of $52.71 to a recent low of $34.30. Since hitting that low, the stock has been doing nothing but trending higher for the past two months. During that trend, shares of CNQR have been making higher highs and higher lows, which is bullish.

    The way I would play this name is to wait until after they report their numbers and buy the stock if it breaks out above some past overhead resistance at $49.83 on big volume. Look for volume that’s tracking in close to or above its three-month average action of 599,338 shares. If that level is taken out, I would then add to any long position once it trades above $52.71 with volume.

    I would consider shorting this stock after earnings only if it drops below its 200-day moving average of $47.26 on heavy volume. I would then add to any short position if near-term support at $46.86 is taken out with volume. I would target a drop back towards its 50-day moving average of $41.80, or possibly even lower if the bears smack this stock down post-earnings.

    Qihoo 360 Technology

    One earnings short-squeeze play in computer services complex is anti-virus software maker in China Qihoo 360 Technology (QIHU), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Qihoo 360 Technology to report revenues of $42.07 million on earnings of 10 cents per share.

    This stock spiked big on Monday with shares trading higher by 8.8% to $19.45 on decent volume ahead of their earnings report. Volume registered 992,000 shares, which is well above its three-month average of 678,000 shares. This sharp move higher also took the stock back above its 50-day moving average of $18.62 a share.

    >>6 Stocks Poised for Stunning Profit Growth

    The current short interest as a percentage of the float for Qihoo 360 Technology sits at around 5%. That means that out of the 71.18 million shares in the tradable float, 3.59 million are sold short by the bears. This isn’t a huge short interest, but it’s high enough to see a tradable short-squeeze develop if the bulls hear what they want.

    From a technical standpoint, this stock is currently trading above its 50-day moving average, which is bullish. This stock dropped from its August high of $26.08 to a recent low of $14.30. Since hitting that low, the stock has bounced big and now trades just under $19.50 a share. Traders should now look to play the breakout after earnings for some quick profits.

    The way to trade this stock is to wait until after earnings and buy it once it breaks out above some past overhead resistance at $21.50 a share on heavy volume. Look for volume that’s tracking in close to or above its three-month average action of 678,000 shares. If that level gets taken out, I would then add to any long position once it clears $23 with volume. Target a run back towards $26 or possibly even higher if the bulls gain control of this stock post-earnings.

    I would only get short this stock after they report earnings if it drops back below its 50-day moving average of $18.62 on heavy volume. I would then add to any short once it takes out more support at $16.35. Target a fall back toward $15 to $14.30 if the bears hammer this lower post-earnings.

    Amtech Systems

    Another earnings short-squeeze candidate is semiconductor equipment maker Amtech Systems (ASYS), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Amtech Systems to report revenue of $54.29 million on earnings of 29 cents per share.

    This stock is trading right near some previous support levels at $9.40 to $9.60 a share as we head into the quarter. If the stock can hold above those levels and above its 50-day moving average of $9.75 after earnings, then shares could spike and break out.

    The current short interest as a percentage of the float for Amtech Systems stands at 6.9%. That means that out of the 9 million shares in the tradable float, 624,182 shares are sold short by the bears. This stock has a decent short interest and a very small float. Any good earnings news could set off a solid short squeeze for the bulls.

    >>5 Stocks Under $10 With Big Upside Potential

    From a technical standpoint, this stock is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently dropped big from its July high of $21.65 to a recent low of $7.12 a share. The stock has now started to trade sideways for the past few months between $11.60 and around $8.60 a share. A move outside of that range will set the stock up for its next big trend.

    If you’re bullish on this stock, I would wait until after earnings are reported and buy the stock once it breaks out above $11.60 on big volume. Look for volume that’s tracking in close to or above its three-month average action of 243,500 shares. I would then add to any long position once the stock takes out $14 with volume. That should set up ASYS to fill some of a recent gap down in price from back in August.

    I would only get short this stock after earnings are reported if it trades below $9.40 share on heavy volume. I would add to any short position once $8.60 is then taken out, and target a drop back towards that recent low of $7.12.

    To see more potential earnings short squeeze plays, including Hot Topic (HOTT), Zoll Medical (ZOLL) and E Commerce China Dangdang (DANG), 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.