Stock Quotes in this Article: ADTN, HITK, MHR, VOXX, WWW

DELAFIELD, 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.

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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 time frame 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.

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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.

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.

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

Hi-Tech Pharmacal

My first earnings short-squeeze play is Hi-Tech Pharmacal (HITK), a specialty manufacturer and marketer of prescription, over-the-counter and nutritional products, which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Hi-Tech Pharmacal to report revenue of $60.70 million on earnings of 65 cents per share.

During the last quarter, this company reported revenue of $64.3 million and GAAP reported sales were 16% higher than the prior-year quarter's $55.6 million. Also during the last quarter, this company reported EPS of 43 cents per share and GAAP EPS was 43 cents per share, which was 46% lower than the prior-year quarter's 79 cents per share.

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The current short interest as a percentage of the float for Hi-Tech Pharmacal is pretty high at 10.5%. That means that out of the 10.99 million shares in the tradable float, 1.11 million shares are sold short by the bears. This is a high short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a large short-squeeze for shares of HITK post-earnings.

From a technical perspective, HITK 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 fro the last month, with shares moving higher from its low of $29.24 to its recent high of $34.65 a share. During that move, shares of HITK have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of HITK within range of triggering a breakout trade post-earnings.

If you're bullish on HITK, 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 $34.65 to $35.97 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 73,375 shares. If that breakout triggers, then HITK will set up to re-test or possibly take out its next major overhead resistance level at $38 to $43 a share.

I would simply avoid HITK 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 $32.91 a share and then below more key support levels at $32.82 to $32.50 a share with high volume. If we get that move, then HITK will set up to re-test or possibly take out its next major support level at $29.24 to $27.49 a share.

Wolverine World Wide

Another potential earnings short-squeeze trade is men's footwear player Wolverine World Wide (WWW), which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Wolverine World Wide to report revenue of $591.03 million on earnings of 34 cents per share.

Just recently, Argus raised its price target on Wolverine World Wide to $64 from $54 saying the firm believes that the company can grow faster than peers and realize further gains as the economy recovers. The firm kept its buy rating on the stock.

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The current short interest as a percentage of the float for Wolverine World Wide is pretty high at 10.4%. That means that out of the 44.67 million shares in the tradable float, 5.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.5%, or by about 169,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of WWW could easily spike sharply higher post-earnings.

From a technical perspective, WWW is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending very strong for the last six months, with shares soaring higher from its low of $38.20 to its recent high of $55.83 a share. During that uptrend, shares of WWW have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WWW within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on WWW, 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 $55.95 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 405,565 shares. If that breakout triggers, then WWW will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $60 to $65 a share, or even $70 a share.

I would simply avoid WWW 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 $52.94 a share and then below its 50-day at $51.70 a share with high volume. If we get that move, then WWW will set up to re-test or possibly take out its next significant support levels at $49.32 to its 200-day at $44.99 a share.

Magnum Hunter Resources

One potential earnings short-squeeze candidate is independent oil and gas player Magnum Hunter Resources (MHR), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Magnum Hunter Resources to report revenue of $88.73 million on a loss of 11 cents per share.

The current short interest as a percentage of the float for Magnum Hunter Resources is extremely high at 25.6%. That means that out of the 158.82 million shares in the tradable float, 40.84 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.4%, or by about 2.44 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of MHR could easily see a solid short-squeeze develop post-earnings.

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From a technical perspective, MHR 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 $2.37 to its recent high of $4.13 a share. During that move, shares of MHR have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MHR within range of triggering a major breakout trade post-earnings.

If you're bullish on MHR, 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 $4.13 to $4.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 4.98 million shares. If we get that breakout, then MHR will set up to re-test or possibly take out its next major overhead resistance levels at $4.69 to its 52-week high at $5.24 a share. Any high-volume move above those levels will then put $6 to $6.45 into range for shares of MHR.

I would avoid MHR 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 $3.46 a share and then below some more key near-term support levels at $3.31 to $3.13 a share with high volume. If we get that move, then MHR will set up to re-test or possibly take out its next major support level at $2.52 to $2.37 a share.

Adtran

Another earnings short-squeeze prospect is communications and networking player Adtran (ADTN), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Adtran to report revenue of $154.16 million on earnings of 16 cents per share.

During the last quarter, this company reported revenue of $143 million and GAAP reported sales were 6.1% higher than the prior-year quarter's $134.7 million. Also during the last quarter, this company reported EPS of 17 cents per share and GAAP EPS was 13 cents per share, which was 35% lower than the prior-year quarter's 20 cents per share.

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The current short interest as a percentage of the float for ADTRAN is very high at 13.8%. That means that out of the 58.99 million shares in the tradable float, 7.84 million shares are sold short by the bears. This is a large short interest on a stock with a relatively low tradable float. If the bulls get the earnings news they're looking for, then this stock could easily rip sharply higher post-earnings.

From a technical perspective, ADTN 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 $17.92 to its recent high of $25.50 a share. During that uptrend, shares of ADTN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ADTN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ADTN, 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 $25.50 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 826,836 shares. If that breakout triggers, then ADTN will set up to re-test or possibly take out its next major overhead resistance levels at $30.45 to $32.50 a share. Any high-volume move above those levels will then give ADTN a chance to tag $35 a share.

I would avoid ADTN 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 $24.50 a share and then below its 50-day at $23 a share with high volume. If we get that move, then ADTN will set up to re-test or possibly take out its next major support levels at $21.50 to its 200-day at $20.31 a share.

Voxx International

My final earnings short-squeeze trade idea today is international distributor in the accessory, mobile and consumer electronics markets Voxx International (VOXX), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Voxx International to report revenue of $191.97 million on earnings of 4 cents per share.

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During the last quarter, this company reported revenue of $206.8 million and GAAP reported sales were 17% higher than the prior-year quarter's $176.6 million. Also during the last quarter, this company reported EPS of 28 cents per share and GAAP EPS was 43 cents per share, which was 6.5% lower than the prior-year quarter's 46 cents per share.

The current short interest as a percentage of the float for Voxx International is notable at 4.9%. That means that out of the 19.40 million shares in the tradable float, 926,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.4%, or by about 879,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of VOXX could spike sharply higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, VOXX 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, with shares soaring higher from its low of $8.91 to its intraday high of $13.32 a share. During that move, shares of VOXX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VOXX within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on VOXX, 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 $14.08 to $14.56 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 129,348 shares. If we get that breakout, then VOXX will set up to enter new three-year-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $17 to $20 a share.

I would avoid VOXX 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 $12.50 to $11.91 a share with high volume. If we get that move, then VOXX will set up to re-test or possibly take out its 50-day at $11.01 a share or its next major support levels at $10.68 to $10 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 Delafield, Wis.

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

Roberto Pedone, based out of Delafield, 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.