Stock Quotes in this Article: CAMP, IDT, ISCA, STZ, TXI

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.

>>5 Trades to Take for October Gains

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.

>>5 Stocks Rising on Big Volume

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.

Texas Industries

My first earnings short-squeeze play is heavy construction materials supplier Texas Industries (TXI), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Texas Industries to report revenue of $233.63 million on earnings of 1 cent per share.

The current short interest as a percentage of the float Texas Industries is very high at 11.7%. That means that out of the 13.44 million shares in the tradable float, 2.49 million shares are sold short by the bears. This is a high short interest on a stock with a very low float. Any bullish earnings news could easily set off a large short-squeeze for shares of TXI post-earnings.

>>5 Rocket Stocks Worth Buying This Week

From a technical perspective, TXI is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last two months, with shares moving higher from its low of $57.83 to its recent high of $67.02 a share. During that uptrend, shares of TXI have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of TXI within range of triggering a near-term breakout trade post-earnings.

If you're bullish on TXI, 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 $67.02 to $70.84 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 179,450 shares. If that breakout hits, then TXI will set up to re-test or possibly take out its 52-week high at $75.30 a share.

I would simply avoid TXI or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day moving average at $62.20 and its 200-day moving average at $62.07 a share with high volume. If we get that move, then TXI will set up to re-test or possibly take out its next major support levels at $58 to $56 a share.

CalAmp

Another potential earnings short-squeeze trade idea is wireless telecommunications player CalAmp (CAMP), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect CalAmp to report revenue $54.82 million on earnings of 16 cents per share.

>>4 Tech Stocks Spiking on Unusual Volume

The current short interest as a percentage of the float for CalAmp sits at 4.1%. That means that out of the 31.29 million shares in the tradable float, 1.30 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.1%, or by about 74,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of CAMP could easily spike sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, CAMP 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 $9.26 to its intraday high of $18.07 a share. During that uptrend, shares of CAMP have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on CAMP, then I would wait until after its report and look for long-biased trades if this stock manages to break out its current 52-week high at $18.07 a share high volume. Look for volume on that move that hits near or above its three-month average action of 271,641 shares. If that breakout hits, then CAMP will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $23 to $25 a share.

I would simply avoid CAMP 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 $16.33 a share with high volume. If we get that move, then CAMP will set up to re-test or possibly take out its next major support levels at $15 to $13 a share.

Constellation Brands

One potential earnings short-squeeze candidate is wine and imported beer player Constellation Brands (STZ) which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Constellation Brands to report revenue of $1.53 billion on earnings of 88 cents per share.

>>5 Dividend Stocks That Want to Pay You More

The current short interest as a percentage of the float for Constellation Brands stands at 4.2%. That means that out of the 156.71 million shares in the tradable float, 6.62 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8%, or by about 489,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of STZ could experience a big short-squeeze post-earnings as the bears rush to cover some of their bets.

From a technical perspective, STZ 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 $49.32 to its recent high of $59.92 a share. During that uptrend, shares of STZ have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of STZ within range of triggering a big breakout trade post-earnings.

If you're bullish on STZ, then I would wait until after its report and look for long-biased trades if this stock manages to break out above $59 a share to its 52-week high at $59.92 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.66 million shares. If that breakout hits, then STZ will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $65 to $70 a share.

I would avoid STZ 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 $56.49 a share to its 50-day moving average at $55.31 a share with high volume. If we get that move, then STZ will set up to re-test or possibly take out its next major support levels at $53 to $50 a share.

International Speedway

Another earnings short-squeeze prospect is International Speedway (ISCA), an owner of motorsports entertainment facilities and promoter of motorsports themed entertainment activities, which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect International Speedway to report revenue of $118.60 million on a loss of 1 cent per share.

>>5 Stocks Poised for Breakouts

The current short interest as a percentage of the float for International Speedway stands at 4.4%. That means that out of the 32.32 million shares in the tradable float, 1.14 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of ISCA could skyrocket higher post-earnings as the bears jump to cover some of their short positions.

From a technical perspective, ISCA 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 $30.61 a share to its intraday high of $33.12 a share. During that uptrend, shares of ISCA have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of ISCA within range of triggering a big breakout trade post-earnings.

If you're bullish on ISCA, 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 $34.90 to its 52-week high at $35.77 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 120,023 shares. If that breakout hits, then ISCA will set up to enter new 52-week high territory, which is bullish technical price action. Some possible upside targets off that breakout are $40 to $45 a share.

I would simply avoid ISCA or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 200-day moving average at $31.75 a share and then below more key support levels at $31 to $30.61 a share with high volume. If we get that move, then ISCA will set up to re-test or possibly take out its next major support levels at $26 to $24 a share.

IDT

My final earnings short-squeeze play is multinational telecommunications player IDT (IDT), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect IDT to report revenue of $397.40 million on earnings of 28 cents per share.

The current short interest as a percentage of the float for IDT sits at 2.6%. That means that out of the 16.70 million shares in the tradable float, 412,000 shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a solid short-covering really if IDT gives the bulls what they're looking for.

From a technical perspective, IDT is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last six months, with shares moving higher from its low of $11.24 a share to its recent high of $19.35 a share. During that uptrend, shares of IDT have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of IDT within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on IDT, 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 $18.48 a share to its 52-week high at $19.44 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 144,822 shares. If that breakout hits, then IDT will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $25 to $27 a share.

I would avoid IDT 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 $17.50 to its 50-day moving average at $17.30 a share with high volume. If we get that move, then IDT will set up to re-test or possibly take out its next major support levels at $16 to $14 a share, or even its 200-day moving average at $13.07 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.


RELATED LINKS:







Follow Stockpickr on Twitter and become a fan on Facebook.

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.