Stock Quotes in this Article: ANN, CIEN, RLD, ZQK, ASNA

 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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RealD

My first earnings short-squeeze trade idea today is global licensor of 3D technologies RealD (RLD), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect RealD to report revenue of $42.97 million on a loss of 19 cents per share.

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The current short interest as a percentage of the float for RealD is pretty high at 11.3%. That means that out of the 41.41 million shares in the tradable float, 4.77 million shares are sold short by the bears. This stock sports a decent short interest with a relatively low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of RLD post-earnings.

From a technical perspective, RLD is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways inside of a consolidation pattern for the last month and change, with shares moving between $14.17 on the downside and $15.76 on the upside. A high-volume move above the upper end of its recent range could easily trigger a major breakout trade for RLD post-earnings.

If you're bullish on RLD, 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 $15.75 to its 52-week high at $15.76 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 356,281 shares. If that breakout triggers, then RLD will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $19 to $22 a share.

I would simply avoid RLD 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 $14.49 a share and then below some key near-term support at $14.17 a share with high volume. If we get that move, then RLD will set up to re-test or possibly take out its next major support levels at $13 to $12 a share.

Ciena

Another potential earnings short-squeeze play is communications networking equipment maker Ciena (CIEN), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Ciena to report revenue of $483.34 million on a loss of 1 cent per share.

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The current short interest as a percentage of the float for Ciena is very high at 18.3%. That means that out of the 86.44 million shares in the tradable float, 18.09 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of CIEN could easily explode higher post-earnings.

From a technical perspective, CIEN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last month, with shares moving higher from its low of $14.22 to its recent high of $17.11 a share. During that uptrend, shares of CIEN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of CIEN within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on CIEN, 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 $17.11 to $17.78 a share and then once it takes out some past resistance at $18.39 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 3.59 million shares. If that breakout hits, the CIEN will set up to re-test or possibly take out its next major overhead resistance levels at $22 to $24 a share.

I would simply avoid CIEN 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 $16.50 to $16 a share with high volume. If we get that move, then CIEN will set up to re-test or possibly take out its next major support levels at its 50-day of $15.52 to its 200-day at $15.12 a share. Any high-volume move below its 200-day will then put $14.50 to $14 into range for shares of CIEN.

Quiksilver

Another earnings short-squeeze candidate is branded apparel maker for the surfing, skateboarding and snowboarding markets Quiksilver (ZQK), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Quiksilver to report revenue of $505.36 million on earnings of 4 cents per share.

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The current short interest as a percentage of the float for Quiksilver is pretty high at 12.3%. That means that out of the 116.49 million shares in the tradable float, 14.09 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.3%, or by about 187,000 shares. If the short-sellers are caught pressing their bets into a strong quarter, then we could easily see a sharp short-squeeze develop for shares of ZQK post-earnings.

From a technical perspective, ZQK 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 and change, with shares moving higher from its low of $5.80 to its recent high of $8.14 a share. During that uptrend, shares of ZQK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ZQK within range of triggering a major breakout trade post-earnings.

If you're bullish on ZQK, 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 $8 to its 52-week high at $8.14 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.88 million shares. If we get that move, then ZQK will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $10 to $12 a share.

I would avoid ZQK 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 $7.43 to its 50-day at $6.82 a share with high volume. If we get that move, then ZQK will set up to re-test or possibly take out its next major support levels at $6 to $5.80 a share. Any high-volume move below $5.80 to $5.65 would then put $5 into range for shares of ZQK.

Ann

Another earnings short-squeeze prospect is specialty retailer of women's apparel, shoes and accessories Ann (ANN), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Ann to report revenue of $581.99 million on earnings of 42 cents per share.

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During the last quarter, this company reported revenue of $607.7 million and GAAP reported sales were 7.2% higher than the prior-year quarter's $566.7 million. Also during the last quarter, EPS was 5 cents per share and GAAP EPS was 5 cents per share, which was 25% higher than the prior-year quarter's 4 cents per share.

The current short interest as a percentage of the float for Ann is pretty high at 9.2%. That means that out of the 44.65 million shares in the tradable float, 4.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.8%, or by about 342,000 shares. If the short-sellers are caught pressing their bets too hard into a bullish quarter, then shares of ANN could rip significantly higher post-earnings.

From a technical perspective, ANN 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 right off its 50-day moving average at $29.72 a share and is now quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ANN, 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 its 200-day moving average of $32.44 a share and then once it takes out more key resistance levels at $32.80 to $33 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.09 million shares. If that breakout triggers, then ANN will set up to re-test or possibly take out its next major overhead resistance levels at $34.30 to $35.50 a share. Any high-volume move above $35.50 will then put $38 to $39 into range for shares of ANN.

I would avoid ANN 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 $29.72 a share and then below more support at $29.64 a share with high volume. If we get that move, then ANN will set up to re-test or possibly take out its next major support levels at $27.63 to $26.95 a share. Any high-volume move below $26.95 will then put $24 into range for shares of ANN.

Ascena Retail Group

My final earnings short-squeeze play is national specialty retailer of apparel for women and tween girls Ascena Retail Group (ASNA), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Ascena Retail Group to report revenue of $1.17 billion on earnings of 30 cents per share.

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During the last quarter, this company reported revenue of $1.24 billion and GAAP reported sales were 44% higher than the prior-year quarter's $862 million. Also during the last quarter, this company's non-GAAP EPS was 26 cents per share and GAAP EPS was 29 cents per share, which was 28% lower than the prior-year quarter's 40 cents per share.

The current short interest as a percentage of the float for Ascena Retail Group is notable at 5.6%. That means that out of the 125.92 million shares in the tradable float, 7.11 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a sharp short-covering rally if Ascena Retail Group posts a bullish earnings report.

From a technical perspective, ASNA 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 and change, with shares moving higher from its low of $17.29 to its recent high of $20.58 a share. During that uptrend, shares of ASNA have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ASNA within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on ASNA, 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 $20.49 to $20.58 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.42 million shares. If that breakout triggers, then ASNA will set up to re-test or possibly take out its 52-week high at $22.18 a share. Any high-volume move above that level will then put $25 to $28 into range for shares of ASNA.

I would simply avoid ASNA 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 $19.50 to $19.35 a share with high volume. If we get that move, then ASNA will set up to re-test or possibly take out its next major support levels at its 200-day at $19.02 to its 50-day at $18.88 a share.

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.