Stock Quotes in this Article: FAST, FDO, TITN, NQ, SAIC

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.

Titan Machinery

My first earnings short-squeeze trade idea is Titan Machinery (TITN), which owns and operates a network of full-service agricultural and construction equipment stores in the U.S. and Europe. Titan is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect it to report revenue of $725.07 million on earnings of 20 cents per share.

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The current short interest as a percentage of the float for Titan Machinery is extremely high at 34.6%. That means that out of the 16.98 million shares in the tradable float, 5.89 million shares are sold short by the bears. This is a monster short interest on a stock with a very low tradable float. Any bullish earnings news could set this stock off on a massive squeeze higher post-earnings.

From a technical perspective, TITN is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last three months, with shares sliding lower from its high of $18.24 to its recent low of $14.57 a share. During that downtrend, shares of TITN have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on TITN, 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 $15.50 to its 50-day moving average of $15.91 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 203,163 shares. If that breakout hits, then TITN will set up to re-test or possibly take out its next major overhead resistance levels at $17 to its 200-day moving average of $17.19 a share. Any high-volume move above those levels will then give TITN a chance to tag or take out $18 to $20 a share.

I would simply avoid TITN 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 $14.57 to its 52-weeek low at $14.19 a share high volume. If we get that move, then TITN will set up to enter new 52-week-low territory, which is bearish technical price action.

NQ Mobile

Another potential earnings short-squeeze play is mobile Internet services player NQ Mobile (NQ), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect NQ Mobile to report revenue $62.83 million on earnings of 32 cents per share.

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NQ Mobile has beaten revenue estimates during the last eleven quarters and the firm has beaten analyst expectations on both the top and bottom lines during the last five quarters.

The current short interest as a percentage of the float for NQ Mobile is extremely high at 50.3%. That means that out of the 26.28 million shares in the tradable float, 13.24 million shares are sold short by the bears. This is an enormous 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 NQ could easily explode sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, NQ is currently trending just above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has been downtrending over the last month, with shares dropping from its high of $22.33 to its recent low of $15.03 a share. During that downtrend, shares of NQ have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on NQ, 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 $17 a share to its 50-day moving average of $18.36 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.28 million shares. If that breakout kicks off, then NQ will set up to re-test or possibly take out its next major overhead resistance levels at $20.85 to $22.33 a share. Any high-volume move above those levels will then give NQ a chance to tag or take out $25 a share.

I would simply avoid NQ 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 $15.03 to $14.28 share with high volume. If we get that move, then NQ will set up to re-test or possibly take out its next major support levels at $13.40 to $12 a share.

Fastenal

Another potential earnings short-squeeze candidate is industrial and construction supplies wholesaler and retailer Fastenal (FAST), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Fastenal to report revenue of $869.99 million on earnings of 38 cents per share.

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The current short interest as a percentage of the float for Fastenal is very high at 11.6%. That means that out of the 272.64 million shares in the tradable float, 31.72 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.3%, or by about 2.16 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of FAST could rip sharply higher post-earnings as the shorts jump to cover some of their positions.

From a technical perspective, FAST is currently trending above its 50-day and its 200-day moving averages, which is bullish. This stock has been uptrending strong over the last two months, with shares soaring higher from its low of $42.48 to its recent high of $52.20 a share. During that uptrend, shares of FAST have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FAST within range of triggering a big breakout trade post-earnings.

If you're bullish on FAST, 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 $52.20 to $52.50 a share and then once it clears its 52-week high at $53.12 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.51 million shares. If that breakout starts, then FAST 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 FAST or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out some key near-term support levels at $48 a share to its 200-day moving average of $47.14 a share with high volume. If we get that move, then FAST will set up to re-test or possibly take out its next major support levels at $44 to its 52-week low at $42.48 a share.

Family Dollar Stores

Another earnings short-squeeze prospect is self-service retail discount store operator Family Dollar Stores (FDO), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Family Dollar Stores to report revenue of $2.77 billion on earnings of 90 cents per share.

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The current short interest as a percentage of the float for Family Dollar Stores stands at 4.9%. That means that out of the 85.77 million shares in the tradable float, 4.25 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of FDO could easily rip higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, FDO is currently trending below its 50-day and is 200-day moving averages, which is bearish. This stock has been downtrending badly for the last four months, with shares moving lower from its high of $71.11 to its recent low of $57.28 a share. During that downtrend, shares of FDO have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of FDO have now moved into oversold territory, since its current relative strength index reading is 30. Oversold can always get more oversold, but it's also an area where a stock can rebound sharply higher from.

If you're bullish on FDO, 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 $59.53 a share and then once it takes out its 50-day moving average of $61.65 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.17 million shares. If that breakout hits, then FDO will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $66.37 a share to around $67.50 to $68 a share.

I would simply avoid FDO or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 52-week low of $57.28 a share with high volume. If we get that move, then FDO will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $53 to $50 a share, or even $47 a share.

Science Applications International

My final earnings short-squeeze idea is scientific, engineering and technology applications player Science Applications International (SAIC), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Science Application International to report revenue of $945.16 million on earnings of 65 cents per share.

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The current short interest as a percentage of the float for Science Application International sits at 3.4%. That means that out of the 48.54 million shares in the tradable float, 1.70 million shares are sold short by the bears. This is not a huge short interest, but it's more than enough to spark a decent short-covering rally post-earnings if the bulls get the earnings news they're looking for.

From a technical perspective, SAIC is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern at $34.28 to $34.04 a share, right above its 200-day moving average. This stock has now started to spike modestly higher off those support levels and it's starting to move within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SAIC, 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 $36.72 a share and then once it takes out more overhead resistance levels at $38.75 to its all-time high at $39.88 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 250,085 shares. If that breakout hits, then SAIC will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $50 to $55, or even $60 a share.

I would avoid SAIC 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 $34.04 a share to its 200-day moving average of $33.46 a share with high volume. If we get that move, then SAIC will set up to re-test or possibly take out its 52-week low at $29.40 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.