Stock Quotes in this Article: HLF, QLIK, TSLA, WLT, FLTX

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.

Tesla Motors

My first earnings short-squeeze play is electric car maker Tesla Motors (TSLA), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Tesla Motors to report revenue of $669.98 million on earnings of 20 cents per share.

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Just this morning, R.W. Baird raised its price target on shares of Tesla Motors to $215 per share from $187 per share and reiterated its strong buy rating on the stock.

The current short interest as a percentage of the float for Tesla Motors is extremely high at 35.2%. That means that out of the 83.87 million shares in the tradable float, 29.64 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of TSLA could easily explode sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, TSLA 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 soaring higher from its low of $116.10 to its intraday high of $205.50 a share. During that uptrend, shares of TSLA have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on TSLA, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its new all-time high of $205.50 a share, or above Wednesday's high if greater with high volume. Look for volume on that move that hits near or above its three-month average action of 9.58 million shares. If that breakout hits, then TSLA will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $240 to $250 a share.

I would simply avoid TSLA 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 $190 to $180 a share with high volume. If we get that move, the TSLA will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $163.26 to its 200-day moving average of $142.62 a share.

Herbalife

Another potential earnings short-squeeze trade idea is global nutrition player Herbalife (HLF), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect Herbalife to report revenue $1.25 billion on earnings of $1.24 per share.

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The current short interest as a percentage of the float for Herbalife is extremely high at 22.4%. That means that out of the 74.06 million shares in the tradable float, 20.51 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.4%, or by about 288,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of HLF could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, HLF is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $59.09 to its recent high of $71.18 a share. During that move, shares of HLF have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of HLF within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on HLF, 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 $71.18 to its 50-day moving average of $72.67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.66 million shares. If that breakout hits, then HLF will set up to re-test or possibly take out its next major overhead resistance levels at $80 to its 52-week high at $83.51 a share. Any high-volume move above those levels will then give HLF a chance to tag $90 to $100 a share.

I would simply avoid HLF or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $64 a share to its 200-day moving average of $62.16 a share with high volume. If we get that move, then HLF will set up to re-test or possibly take out its next major support levels at $59.09 to $56.59 a share.

Walter Energy

Another potential earnings short-squeeze candidate is metallurgical coal producer and exporter to the global steel industry Walter Energy (WLT), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Walter Energy to report revenue of $477.44 million on a loss of 84 cents per share.

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Just recently, Wells Fargo downgraded shares of Walter Energy to market perform from outperform citing weak met coal pricing and the company's high debt loads. The firm also lowered its price target for shares of WLT to $10 to $13 from $18 to $20.

The current short interest as a percentage of the float for Walter Energy is extremely high at 38.5%. That means that out of the 62.17 million shares in the tradable float, 23.92 million shares are sold short by the bears. This is a monster short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily trigger a large short-squeeze for shares of WLT post-earnings.

From a technical perspective, WLT 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 three months and change, with shares sliding lower from its high of $19.47 to its recent low of $10.07 a share. During that downtrend, shares of WLT have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of WLT have just started to bounce higher off that $10.07 low and it's quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on WLT, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $11.36 to $12 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 6.48 million shares. If that breakout hits, then WLT will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $13.52 to its 200-day moving average of $14.21 a share.

I would avoid WLT 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 $10.07 to its 52-week low of $9.88 a share with high volume. If we get that move, then WLT will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $9 to $8 a share.

Fleetmatics Group

Another earnings short-squeeze prospect is fleet management solutions delivered by software-as-a-service provider Fleetmatics Group (FLTX), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Fleetmatics Group to report revenue of $49.05 million on earnings of 23 cents per share.

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The current short interest as a percentage of the float for Fleetmatics Group is pretty high at 10%. That means that out of the 35.92 million shares in the tradable float, 3.53 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low float. Any bullish earnings news could easily spark a sold short-covering rally post-earnings as the bears rush to cover some of their bets.

From a technical perspective, FLTX 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 consolidating and trending sideways for the last three months, with shares moving between $35.22 on the downside and $44.52 on the upside. Shares of FLTX are now starting to spike higher above its 200-day moving average and this stock is quickly moving within range of triggering a big breakout trade above the upper-end of its recent range.

If you're bullish on FLTX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $39.70 to some more near-term overhead resistance levels at $42.25 to $44.52 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 297,119 shares. If that breakout hits, then FLTX will set up to re-test or possibly take out its next major overhead resistance levels at $50 to its 52-week high at $52.28 a share.

I would simply avoid FLTX 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 of $36.77 a share to more near-term support levels at $35.63 to $35.22 a share with high volume. If we get that move, then FLTX will set up to re-test or possibly take out its next major support levels at $30.61 to $29.92 a share.

Qlik Technologies

My final earnings short-squeeze play is user-driven business intelligence software solutions provider Qlik Technologies (QLIK), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Qlik Technologies to report revenue of $158.24 million on earnings of 30 cents per share.

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The current short interest as a percentage of the float for Qlik Technologies is pretty high at 9.5%. That means that out of the 83.11 million shares in the tradable float, 8.30 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of QLIK could easily surge sharply higher post-earnings as the bears jump to cover some of their bets.

From a technical perspective, QLIK 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 a bit over the last few weeks, with shares moving higher from its low of $25.61 to its intraday high of $28.73 a share. During that uptrend, shares of QLIK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of QLIK within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on QLIK, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $29.49 a share and then once it takes out more near-term overhead resistance at $30 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.57 million shares. If that breakout hits, then QLIK will set up to re-fill some of its previous gap-down-day zone from last October that started at $34 a share. If that gap gets filled with strong volume, then shares of QLIK could easily tag $40 a share.

I would avoid QLIK 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 $26.48 a share with high volume. If we get that move, then QLIK will set up to re-test or possibly take out its next major support levels at $25.61 to $24.90 a share. Any high-volume move below those levels will then set up QLIK to re-test or possibly take out its next major support levels at its 52-week low of $23.23 to $20 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.