Stock Quotes in this Article: CLF, ESI, UA, VOCS, ANGI

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.

ITT Educational Services

My first earnings short-squeeze play is ITT Educational Services (ESI), a provider of postsecondary degree programs in the U.S., which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect ITT Educational Services to report revenue of $273 million on earnings of 90 cents per share.

The current short interest as a percentage of the float for ITT Educational Services is extremely high at 57.9%. That means that out of the 14.21 million shares in the tradable float, 8.52 million shares are sold short by the bears. This is a huge short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a monster short-squeeze for shares of ESI post-earnings.

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From a technical perspective, ESI 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 $22.27 to its recent high of $28.50 a share. During that move, shares of ESI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ESI within range of triggering a major breakout trade.

If you're bullish on ESI, 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 $28.50 to $28.52 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 763,368 shares. If that breakout hits, then ESI will set up to re-test or possibly take out its next major overhead resistance levels at $32 to $35 a share. Any high-volume move above those levels will then put $40 into range for shares of ESI.

I would simply avoid ESI 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 $26.21 to its 50-day at $25.39 a share with high volume. If we get that move, then ESI will set up to re-test or possibly take out its next major support levels at $23 to $22.27 a share. Any high-volume move below those levels will then give ESI a chance to tag its 200-day at $19.63 a share.

Cliffs Natural Resources

Another potential earnings short-squeeze trade is international mining and natural resources player Cliffs Natural Resources (CLF), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Cliffs Natural Resources to report revenue of $1.42 billion on earnings of 61 cents per share.

During the last quarter, this company reported revenue of $1.14 billion and GAAP reported sales were 5.9% lower than the prior-year quarter's $1.21 billion. Also during the last quarter, this company posted non-GAAP EPS of 60 cents per share and GAAP EPS was 66 cents per share, which was 75% lower than the prior-year quarter's $2.63 per share.

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The current short interest as a percentage of the float for Cliffs Natural Resources is extremely high at 36%. That means that out of the 152.10 million shares in the tradable float, 54.80 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13%, or by about 6.32 million shares. If the bears are caught pressing their bets into a strong quarter, then shares of CLF could easily rip sharply higher post-earnings.

From a technical perspective, CLF is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at $15.50 to $15.41 a share. Following that bottom, shares of CLF have started to uptrend and move within range of triggering a near-term breakout trade.

If you're in the bull camp on CLF, 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 $19 to $19.31 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 10.48 million shares. If that breakout triggers, then CLF will set up to re-test or possibly take out its next major overhead resistance levels at $22 to $23.50 a share. Any high-volume move above those levels will then put $25 to its 200-day at $27.03 into range for shares of CLF.

I would simply avoid CLF 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 $18.23 a share with high volume. If we get that move, then CLF will set up to re-test or possibly take out its 52-week low at $15.41 a share. Any high-volume move below its 52-week low is bearish technical price action.

Angie's List

One potential earnings short-squeeze candidate is Angie's List (ANGI), an operator of consumer-driven services for members to research, hire, rate and review local professionals, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Angie's List to report revenue of $59.23 million on a loss of 25 cents per share.

The current short interest as a percentage of the float for Angie's List is extremely high at 24.1%. That means that out of the 52.34 million shares in the tradable float, 9.78 million shares are sold short by the bears. This is a large short interest on a stock with a very low tradable float. If the bulls get the earnings news they're looking for, then this stock could easily explode higher post-earnings.

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From a technical perspective, ANGI 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 six months, with shares soaring higher from its low of $11.26 to its recent high of $28.32 a share. During that uptrend, shares of ANGI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ANGI within range of triggering a major breakout trade.

If you're bullish on ANGI, 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 $28 to its all-time high at $28.32 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.12 million shares. If that breakout triggers, then ANGI will set up to enter new all-time high territory, which is bullish technical price action. Some possible upside targets off that breakout are $35 to $40 a share.

I would avoid ANGI 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 $25.43 a share and then below more support at $24.01 a share with high volume. If we get that move, then ANGI will set up to re-test or possibly take out its next major support levels at $23 to $22 a share. Any high-volume move below those levels will then put $19 to $18 into range for shares of ANGI.

Under Armour

Another earnings short-squeeze prospect is Under Armour (UA), a maker of apparel, footwear and accessories for men, women and youth, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Under Armour to report revenue of $448.98 million on earnings of 14 cents per share.

Just recently, Corinna Freedman, an analyst at Wedbush Securities started coverage on Under Armour with an outperform rating and a $70 a share price target. She said there are multiple growth drivers within its wholesale arm to support the stock's premium valuation, while Under Armour's direct-to-consumer business should continue to benefit gross margins and brand awareness. Freedman is modeling for modest upside to the second-quarter earnings and sees minimal risk for the full year.

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The current short interest as a percentage of the float for Under Armour is pretty high at 12.8%. That means that out of the 79.90 million shares in the tradable float, 10.24 million shares are sold short by the bears. This stock sports a big short interest and it has an extremely low float. If the bulls get the earnings news they're looking for, then shares of UA could easily experience a sharp short-covering rally post-earnings.

From a technical perspective, UA 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 and change, with shares soaring higher from its low of $55.63 to its recent high of $62.40 a share. During that move, shares of UA have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of UA within range of triggering a near-term breakout.

If you're bullish on UA, 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 $62.40 a share to its 52-week high at $65.55 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.20 million shares. If that breakout triggers, then UA will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $80 a share.

I would avoid UA 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 $60.60 a share with high volume. If we get that move, then UA will set up to re-test or possibly take out its next major support levels at $55.63 a share to its 200-day moving average at $53.96 a share. Any high-volume move below its 200-day will then put its next major support levels at $50 to $48 into range for shares of UA.

Vocus

My final earnings short-squeeze trade idea is provider of cloud marketing software Vocus (VOCS), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Vocus to report revenue of $45.26 million on a loss of 2 cents per share.

The current short interest as a percentage of the float for Vocus is notable at 4.9%. That means that out of the 13.85 million shares in the tradable float, 957,000 shares are sold short by the bears. . The bears have also been increasing their bets from the last reporting period by 35.9%, or by about 253,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of VOCS could easily spike sharply higher post-earnings.

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From a technical perspective, VOCS is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock gapped down sharply back in April from $13.60 to $8.05 a share. Since that move this stock has been uptrending strong for the last three months, with shares moving higher from its low of $8.05 to its recent high of $11.62 a share. During that uptrend, shares of VOCS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of VOCS within range of triggering a major breakout trade.

If you're in the bull camp on VOCS, 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 $11.62 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 686,665 shares. If that breakout triggers, then VOCS will set up to re-fill some of its previous gap down zone from April that started at $13.60 a share. This stock could even trend north of $14 a share if that gap gets filled with strong volume flows.

I would avoid VOCS 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 $10.69 a share to its 50-day at $9.83 a share with high volume. If we get that move, then VOCS will set up to re-test or possibly take out its next major support levels at $9 to $8.50 a share. Any high-volume move below those levels will then put its 52-week low at $8.05 into range for share of VOCS.

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.