Stock Quotes in this Article: AZZ, FINL, JBL, MTN, THO

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.

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.

Thor Industries

My first earnings short-squeeze trade idea is recreational vehicle maker Thor Industries (THO), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Thor Industries to report revenue of $964.54 million on earnings of 95 cents per share.

The current short interest as a percentage of the float Thor Industries is notable at 6.7%. That means that out of the 50.23 million shares in the tradable float, 3.01 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of THO could easily rip sharply higher post-earnings.

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From a technical perspective, THO 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 moving higher from its low of $34.38 to its recent high of $55.93 a share. During that uptrend, shares of THO have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of THO within range of triggering a big breakout trade post earnings.

If you're bullish on THO, 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 $55.29 to its 52-week high at $55.93 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 397,012 shares. If that breakout hits, then THO will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $65 to $70 a share.

I would simply avoid THO 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 moving average of $53.11 to $52.52 a share with high volume. If we get that move, then THO will set up to re-test or possibly take out its next major support levels at $49.28 to $45 a share.

Finish Line

Another potential earnings short-squeeze play is mall-based specialty retailer Finish Line (FINL), which is set to release its numbers on Friday before the market open. Wall Street analysts, on average, expect Finish Line to report revenue of $428.05 million on earnings of 45 cents per share.

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Just recently, Piper Jaffray upgraded shares of Finish Line to neutral from underweight, citing a more favorable outlook for the company's Macy's initiative and easing comparisons. Piper raised its price target on shares of FINL to $21 from $19.

The current short interest as a percentage of the float for Finish Line is pretty high at 11%. That means that out of the 47.95 million shares in the tradable float, 5.32 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.3%, or by 316,000 shares. If the bears are caught pressing their bets into a strong quarter, then shares of FINL could rip sharply higher post-earnings as the shorts rush to cover some of their bets.

From a technical perspective, FINL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending modestly for the last month, with shares moving higher from its low of $20.51 to its recent high of $23.65 a share. During that move, shares of FINL have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FINL within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on FINL, 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 $23.65 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 550,303 shares. If that breakout hits, then FINL will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that move are $30 to $35 a share.

I would simply avoid FINL 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 of $21.98 a share with high volume. If we get that move, then FINL will set up to re-test or possibly take out its next major support levels at 20.50 to its 200-day moving average of $19.99 a share.

Vail Resorts

One potential earnings short-squeeze candidate is adventure sports facilities and ski resorts player Vail Resorts (MTN), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Vail Resorts to report revenue of $117.82 million on a loss of $1.71 per share.

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The current short interest as a percentage of the float for Vail Resorts stands at 5%. That means that out of the 35.43 million shares in the tradable float, 1.79 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7%, or by 116,000 shares. If the bears are caught pressing their bets into a bullish quarter, then shares of MTN could spike sharply higher post-earnings.

From a technical perspective, MTN 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 $60.01 to its recent high of $71.18 a share. During that uptrend, shares of MTN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MTN within range of triggering a near-term breakout trade.

If you're bullish on MTN, 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 $70.95 a share to its 52-week high at $71.18 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 137,456 shares. If that breakout hits, then MTN will set up enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $80 to $85 a share.

I would avoid MTN 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 of $68.19 a share with high volume. If we get that move, then MTN will set up to re-test or possibly take out its next major support levels at $65 to $62 a share.

AZZ

Another earnings short-squeeze prospect is electrical equipment and components maker AZZ (AZZ), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect AZZ to report revenue of $202.83 million on earnings of 66 cents per share.

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The current short interest as a percentage of the float for AZZ sits at 2.9%. That means that out of the 24.47 million shares in the tradable float, 696,000 shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of AZZ could spike sharply higher post-earnings as the bears look to cover some of their bets.

From a technical perspective, AZZ 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 moving higher from its low of $34.61 to its recent high of $44.69 a share. During that uptrend, shares of AZZ have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of AZZ within range of triggering a near-term breakout trade post-earnings.

If you're bullish on AZZ, 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 $44.69 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 229,856 shares. If that breakout triggers, the AZZ will set up to re-test or possibly take out its 52-week high at $49.10 a share. Any high-volume move above that level will then give AZZ a chance to trend north of $50 a share.

I would simply avoid AZZ or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 200-day at $41.10 a share with high volume. If we get that move, then AZZ will set up to re-test or possibly take out its next major support levels at its 50-day of $38.70 a share to $36 to $35 a share.

Jabil Circuit

My final earnings short-squeeze play is semiconductor player Jabil Circuit (JBL), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Jabil Circuit to report revenue of $4.51 billion on earnings of 54 cents per share.

Just recently, Stifel lowered its EPS estimates for Jabil's November quarter to 58 cents per share from 63 cents per share, due to BlackBerry's weaker than expected smartphone sales. The firm lowered its fiscal 2014 EPS estimate for Jabil to $2.44 per share from $2.57 per share, but kept its $26 a share price target and buy rating on the stock.

The current short interest as a percentage of the float for Jabil Circuit sits at 2.6%. That means that out of the 182.48 million shares in the tradable float, 4.63 million shares are sold short by the bears. Any bullish earnings news could easily spark a decent short-covering rally for shares of JBL post-earnings.

From a technical perspective, JBL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways for the last two months, with shares moving between $22.37 on the downside and $24.32 on the upside. Any high-volume move above the upper-end of its recent range could trigger a big breakout trade for shares of JBL post-earnings.

If you're in the bull camp on JBL, 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 $24.13 a share to its 52-week high at $24.32 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.68 million shares. If that breakout triggers, then JBL will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $35 a share.

I would avoid JBL or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day at $23.15 a share to more key near-term support levels at $22.98 to $22.37 a share with high volume. If we get that move, then JBL will set up to re-test or possibly take out its next major support levels at its 200-day of $20.04 a share to $18 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.