Stock Quotes in this Article: IOC, TTWO, NQ, AH, XONE

MADISON, Wis. (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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InterOil

My first earnings short-squeeze trade play is integrated energy player InterOil (IOC), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect InterOil to report revenue of $331.46 million on a loss of 12 cents per share.

The current short interest as a percentage of the float for InterOil is extremely high at 39.1%. That means that out of the 34.07 million shares in the tradable float, 13.45 million shares are sold short by the bears. This is a monster short interest on a stock with a relatively low float. Any bullish earnings news could easily spark a big short-squeeze for shares of IOC post-earnings.

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From a technical perspective, IOC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently crossed back above its 50-day moving average at $74.97 a share, after it bounced higher right above its 200-day at $70.86 a share. That move is quickly pushing shares of IOC within range of triggering a major breakout trade.

If you're bullish on IOC, 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 $80 to $83.18 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 705,956 shares. If that breakout triggers, then IOC will set up to re-test or possibly take out its next major overhead resistance levels at $90 to $99 a share.

I would simply avoid IOC or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $74.97 a share with high volume. If we get that move, then IOC will set up to re-test or possibly take out its next major support levels at $72.56 to its 200-day at $70.86 a share. Any high-volume move below its 200-day will then put $68 into range for shares of IOC post-earnings.

ExOne

Another potential earnings short-squeeze play is 3D printing machines and printed products player ExOne (XONE), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect ExOne to report revenue of $9.15 million on a loss of 11 cents per share.

The current short interest as a percentage of the float for ExOne is extremely high at 32.6%. That means that out of the 7.36 million shares in the tradable float, 2.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.3%, or by about 152,000 shares. This stock has explosive short-squeeze potential, since the bears are pressing their bets into the quarter, and the float is so small for ExOne. If the bulls get the earnings news they're looking for, then this stock could explode higher post-earnings.

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From a technical perspective, XONE is currently trending above its 50-day moving average, which is bullish. This stock has been uptrending strong for the last two months and change, with shares ripping higher from its low of $24.13 to its intraday high of $45.50 a share. During that uptrend, shares of XONE have been mostly making higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on XONE, then I would wait until after its report and look for long-biased trades if this stock manages to break out to a new all-time high above its current all-time of $45.50 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 526,987 shares. If that breakout hits, then XONE will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $60 a share, or even $65 a share.

I would simply avoid XONE or look for short-biased trades if after earnings it fails to trigger that move and then drops back below some key near-term support at $40 a share with high volume. If we get that move, then XONE will set up to re-test or possibly take out its next major support levels at $37.50 to $35 a share.

Accretive Health

Another earnings short-squeeze candidate is Accretive Health (AH), which provides of services that help health care providers generate sustainable improvements in their operating margins and health care quality. It is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Accretive Health to report revenue of $236.49 million on earnings of 9 cents per share.

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The current short interest as a percentage of the float for Accretive Health is very high at 18.6%. That means that out of the 51.07 million shares in the tradable float, 10.57 million shares are sold short by the bears. This is high short interest on a stock with a relatively small float. If the bulls get the earnings news they're looking for, then this stock could easily rip higher post-earnings.

From a technical perspective, AH 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 uptrending strong for the last month, with shares moving higher from its low of $8.91 to its intraday high of $10.89 a share. During that uptrend, shares of AH have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AH within range of triggering a near-term breakout trade post-earnings.

If you're bullish on AH, 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 $11 a share and then once it takes out its 200-day at $11.32 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 875,449 shares. If we get that breakout, then AH will set up to re-test or possibly take out its next major overhead resistance levels at $13 to $13.50 a share, or even $14 a share.

I would avoid AH 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 $10.01 a share with high volume. If we get that move, then AH will set up to re-test or possibly take out its next major support level at $8.90 a share.

NQ Mobile

Another earnings short-squeeze prospect is NQ Mobile (NQ), a global provider of mobile Internet services focusing on security, privacy and productivity, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect NQ Mobile to report revenue of $32.98 million on earnings of 19 cents per share.

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The current short interest as a percentage of the float for NQ Mobile is very high at 16.7%. That means that out of the 27.90 million shares in the tradable float, 4.50 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 15.1%, or by about 590,000 shares. If the short-sellers are caught pressing their bets into a bullish quarter, then we could easily see a monster short-squeeze develop for shares of NQ post-earnings.

From a technical perspective, NQ 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 month, with shares moving higher from its low of $7.80 to its intraday high of $9.70 a share. During that uptrend, shares of NQ have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NQ within range of triggering a major breakout trade.

If you're bullish on NQ, 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 $10.20 to $10.68 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 788,400 shares. If that breakout triggers, then NQ will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $12 to $13 a share. Any move above $13 would then push shares of NQ into new all-time-high territory, which is bullish technical price action.

I would avoid NQ 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 its 50-day of $8.77 to $8.49 a share with high volume. If we get that move, then NQ will set up to re-test or possibly take out its next major support level a $7.80 to its 200-day moving average at $7.36 a share.

Take-Two Interactive Software

My final earnings short-squeeze play is videogame maker Take-Two Interactive Software (TTWO), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Take-Two Interactive Software to report revenue of $280.36 million on earnings of 23 cents per share.

The current short interest as a percentage of the float for Take-Two Interactive Software is very high at 16.1%. That means that out of the 61.01 million shares in the tradable float, 14.11 million shares are sold short by the bears. This stock sports a high short interest and a relatively low float. Any bullish earnings news could easily set off a sharp move higher for shares of TTWO post-earnings.

From a technical perspective, TTWO 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 month, with shares moving higher from its low of $14.08 to its recent high of $16.68 a share. During that uptrend, shares of TTWO have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TTWO within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on TTWO, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high at $16.68 a share and then once it clears some past resistance at $16.99 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.57 million shares. If that breakout triggers, then TTWO could easily trade up to or north of $20 a share post-earnings.

I would simply avoid TTWO or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $15.53 a share with high volume. If we get that move, then TTWO will set up to re-test or possibly take out its next major support levels at $14.87 to $14.08 a share. Any high-volume move below $14.08 will then put $13.50 into range for shares of TTWO.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Madison, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Madison, Wis., 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.