Stock Quotes in this Article: BGG, JDSU, MYGN, NTAP, RRGB

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.

Briggs & Stratton

My first earnings short-squeeze trade idea is Briggs & Stratton (BGG), a producer of air-cooled gasoline engines for outdoor power equipment, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Briggs & Stratton to report revenue of $474.97 million on earnings of 19 cents per share.

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Just recently, Robert Baird lowered its price target on Briggs & Stratton to $22 from $27 following lower-than-expected pre-announced fourth quarter results. The firm cited adverse weather, softness in Europe and a tight inventory control channel that yielded a sales shortfall.

The current short interest as a percentage of the float for Briggs & Stratton is extremely high at 16.7%. That means that out of the 46.93 million shares in the tradable float, 7.84 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.6%, or by about 346,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of BGG could rip higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, BGG is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last six months, with shares pushing lower from $25 to its recent low of $18.69 a share. During that downtrend, shares of BGG have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on BGG, 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 $20.98 to $21.99 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 393,298 shares. If that breakout hits, then BGG will set up to re-test or possibly take out its next major overhead resistance levels at $24 to $24.50 a share.

I would simply avoid BGG 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 $19.60 to $19.45 a share with high volume. If we get that move, then BGG will set up to re-test or possibly take out its next major support levels at $18.69 to $17 a share. Any high-volume move below those levels will then put $16 to $14.50 within range for shares of BGG.

Red Robin Gourmet Burgers

Another potential earnings short-squeeze play is casual dining restaurant chain Red Robin Gourmet Burgers (RRGB), which is set to release its numbers Thursday before the market open. Wall Street analysts, on average, expect Red Robin Gourmet Burgers to report revenue of $239.61 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for Red Robin Gourmet Burgers is pretty high at 9.1%. That means that out of the 12.82 million shares in the tradable float, 1.17 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. If the bulls get the earnings news they're looking for, then shares of RRGB could spike substantially higher post-earnings.

From a technical perspective, RRGB is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending strong for the last six months, with shares soaring higher from its low of $36 to its recent high of $61.28 a share. During that uptrend, shares of RRGB have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RRGB within range of triggering a near-term breakout trade.

If you're in the bull camp on RRGB, 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 $58.36 to its 52-week high at $61.28 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 141,355 shares. If that breakout hits, then RRGB 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 $75 a share.

I would simply avoid RRGB 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 $55.27 to $53.01 a share with high volume. If we get that move, then RRGB will set up to re-test or possibly take out its next major support levels at $50 to $46 a share.

JDS Uniphase

One potential earnings short-squeeze candidate is network communications equipment player JDS Uniphase (JDSU), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect JDS Uniphase to report revenue of $430.59 million on earnings of 13 cents per share.

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The current short interest as a percentage of the float for JDS Uniphase is notable at 4%. That means that out of the 235.87 million shares in the tradable float, 7.91 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of JDSU could see a nice pop post-earnings as the bears rush to cover some of their short positions.

From a technical perspective, JDSU 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 four months, with shares moving higher from its low of $12.36 to its recent high of $15.31 a share. During that uptrend, shares of JDSU have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of JDSU within range of triggering a major breakout trade post-earnings.

If you're bullish on JDSU, 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 $15.31 to $15.55 a share and then once it takes out its 52-week high at $15.63 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.54 million shares. If that breakout triggers, then JDSU will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $20 to $22.40 a share.

I would avoid JDSU or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day at $14.50 a share and then below more near-term support at $14.24 a share with high volume. If we get that move, then JDSU will set up to re-test or possibly take out its next major support levels at $13.57 to $13 a share. Any high-volume move below those levels will then put $12.40 to $12 into range for shares of JDSU.

Myriad Genetics

Another earnings short-squeeze prospect is molecular diagnostic player Myriad Genetics (MYGN), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Myriad Genetics to report revenue of $159.87 million on earnings of 44 cents per share.

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This company has managed to beat Wall Street estimates three times during the last four quarters. If Myriad Genetics pulls off another beat, then this stock could easily experience a tradable short-squeeze.

The current short interest as a percentage of the float for Myraid Genetics is pretty high at 13.8%. That means that out of the 79.35 million shares in the tradable float, 10.96 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 17%, or by about 1.59 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of MYGN could explode higher post-earnings as the bears jump to cover some of their short bets.

From a technical perspective, MYGN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways for the past month, with shares moving between $29.07 on the downside and $32.05 on the upside. A high-volume move above the upper-end of its recent range post-earnings could trigger a major breakout trade for shares of MYGN.

If you're bullish on MYGN, 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 $31 to $32.05 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.07 million shares. If that breakout triggers, then MYGN will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $38.27 a share. Any high-volume move above $38.27 will then give MYGN a chance to trend north of $40 a share.

I would avoid MYGN 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 $29.07 a share to its 200-day moving average at $28.11 a share with high volume. If we get that move, then MYGN will set up to re-test or possibly take out its next major support levels at $26 to $25 a share. Any high-volume move below those levels will then put $24 to $22 within range for shares of MYGN.

NetApp

My final earnings short-squeeze play is NetApp (NTAP), a provider of storage systems and data management solutions for IT infrastructures, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect NetApp to report revenue of $1.53 billion on earnings of 49 cents per share.

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Just recently, Robert Baird upgraded NetApp to neutral from underperform and slapped a $44 per share price target on the stock. The firm said that NTAP is cutting costs and aggressively returning cash to investors. Brean Capital also just raised its price target on NTAP to $50 from $43 following industry checks that indicate a strengthening storage demand environment.

The current short interest as a percentage of the float for NetApp is pretty high at 11.8%. That means that out of the 358.61 million shares in the tradable float, 42.31 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6%, or by about 2.39 million shares. If the bears are caught pressing their bets into a bullish quarter, then shares of NTAP could easily surge higher post-earnings as the shorts jump to cover some of their bets.

From a technical perspective, NTAP 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 four months, with shares moving higher from its low of $32.62 to its recent high of $43.12 a share. During that uptrend, shares of NTAP have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of NTAP within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on NTAP, 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 $43.12 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 7.30 million shares. If that breakout triggers, then NTAP will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $55 to $60 a share.

I would avoid NTAP 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 $41 a share and then back below its 50-day at $39.54 a share with high volume. If we get that move, then NTAP will set up to re-test or possibly take out its next major support levels at $37 to $36 a share, or even its 200-day at $35.10 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.