Stock Quotes in this Article: DECK, SIRI, SYNA, SWFT, GIMO

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.

Swift Transportation

My first earnings short-squeeze trade idea is multi-faceted transportation services player Swift Transportation (SWFT), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Swift Transportation to report revenue $1.02 billion on earnings of 12 cents per share.

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Just recently, RW Baird suggested that long-term investors use the weakness in shares of Swift Transportation to add to positions, citing positive forward-looking commentary from the company, accelerating industry rate growth and unchanged investment thesis. Baird has the stock rated as outperform with a $28 price target per share.

The current short interest as a percentage of the float for Swift Transportation is very high at 18.1%. That means that out of the 102.81 million shares in the tradable float, 18.68 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of SWFT could easily spike sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, SWFT is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has recently crossed back above its 50-day moving average and it's quickly moving within range of triggering a big breakout trade post-earnings.

If you're bullish on SWFT, 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 $25.82 to its 52-week high at $26.71 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 post-earnings, then SWFT 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 simply avoid SWFT 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 $24.58 a share with high volume. If we get that move, then SWFT will set up to re-test or possibly take out its next major support levels at $22.47 to its 200-day moving average of $21.37 a share.

Sirius XM

Another potential earnings short-squeeze play is satellite radio services provider Sirius XM (SIRI), which is set to release its numbers on Thursday before the market open. Wall Street analysts, on average, expect Sirius XM to report revenue $994.60 million on earnings of 2 cents per share.

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The current short interest as a percentage of the float for Sirius XM is pretty high at 8.5%. That means that out of the 2.89 billion shares in the tradable float, 242.23 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 18 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of SIRI could easily rip sharply higher post-earnings as the shorts jump to cover some of their bets.

From a technical perspective, SIRI 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 four months, with shares sliding lower from its high of $3.89 to its recent low of $3 a share. During that downtrend, shares of SIRI have been making mostly lower highs and lower lows, which is bearish technical price action. That said, shares of SIRI have now started to find some buying interest around some previous support at $3.04 a share.

If you're in the bull camp on SIRI, 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 $3.24 to $3.40 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 68.14 million shares. If that breakout triggers post-earnings, then SIRI will set up to re-test or possibly take out its next major overhead resistance levels at $$3.63 to $3.89 a share. Any high-volume move above those levels will then give SIRI a chance to tag its 52-week high at $4.18 a share.

I would simply avoid SIRI or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 52-week low of $3 a share with high volume. If we get that move, then SIRI will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $2.50 to $2.33 a share.

Synaptics

Another potential earnings short-squeeze candidate is custom-designed human interface solutions developer and supplier Synaptics (SYNA), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Synaptics to report revenue of $192.03 million on earnings of 57 cents per share.

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The current short interest as a percentage of the float for Synaptics is extremely high at 28.6%. That means that out of the 34.56 million shares in the tradable float, 10.01 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 set off a large short-squeeze for shares of SYNA post-earnings.

From a technical perspective, Synaptics is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending for the last few weeks, with shares moving higher from its low of $55.46 to its intraday high of $66.94 a share. During that uptrend, shares of SYNA have been consistently making higher lows and higher highs, which is bullish technical price action. That move is quickly pushing shares of SYNA within range of triggering a major breakout trade post-earnings.

If you're bullish on SYNA, 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 $67.11 a share (or Thursday's intraday high if greater) with high volume. Look for volume on that move that hits near or above its three-month average action of 1.35 million shares. If that breakout starts post-earnings, then SYNA will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $75 to $80 a share, or even $85 a share.

I would avoid SYNA 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 $63 to its 50-day moving average of $61.61 a share with high volume. If we get that move, then SYNA will set up to re-test or possibly take out its next major support levels at $55.46 to $53 a share to its 200-day moving average of $50.67 a share.

Deckers Outdoor

Another earnings short-squeeze prospect is Deckers Outdoor (DECK), a footwear and apparel developer for high-performance outdoor activities and everyday casual lifestyle use, which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Deckers Outdoor to report revenue of $282.13 million on a loss of 15 cents per share.

Just recently, Piper Jaffray said it remains a buyer of Deckers Outdoor shares after spending two days with management. Piper believes its first quarter estimates could prove conservative and it expects shares to move higher as the company's growth recovers this year. The firm has an overweight rating on the stock with a $96 per share price target.

The current short interest as a percentage of the float for Deckers Outdoor is extremely high at 19.9%. That means that out of the 33.59 million shares in the tradable float, 6.70 million shares are sold short by the bears. This is a big short interest on a stock with a relatively low tradable float. This is the perfect recipe for a big short-covering rally post-earnings if Deckers Outdoor can produce the earnings news the bulls are looking for.

From a technical perspective, DECK is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways and consolidating for the last month, with shares moving between $75 on the downside and $82.10 on the upside. A high-volume move above the upper-end of its recent sideways trading chat pattern could trigger a big breakout trade for shares of DECK post-earnings.

If you're bullish on DECK, 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 $79.80 to $82.10 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.11 million shares. If that breakout gets underway post-earnings, then DECK will set up to re-test or possibly take out its next major overhead resistance levels at $87.86 to its 52-week high at $90.09 a share. Any high-volume move above $90.09 will then give DECK a chance to tag $95 to $100 a share.

I would simply avoid DECK 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 $75.62 to $75.27 a share with high volume. If we get that move, then DECK will set up to re-test or possibly take out its next major support levels $72.51 to its 200-day moving average at $71.36 a share. Any high-volume move below those levels will then give DECK a chance to re-test or possibly take out its next major support level at $66.41 a share.

Gigamon

My final earnings short-squeeze play is network traffic intelligence solutions developer Gigamon (GIMO), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Gigamon to report revenue of $31.30 million on a loss of 7 cents per share.

Just recently, DA Davidson upgraded shares of Gigamon to buy from neutral based on valuation, but it also recently lowered its first-quarter revenue outlook based on the fallout of a large deal with an existing customer.

The current short interest as a percentage of the float for Gigamon is pretty high at 9.4%. That means that out of the 17.19 million shares in the tradable float, 1.43 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 81,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of GIMO could easily soar sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, GIMO is currently trending well below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last month, with shares plunging sharply lower from its high of $36.75 to its recent low of $14.75 a share. During that downtrend, shares of GIMO have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of GIMO have now entered extremely oversold territory, since its current relative strength index reading is 19.66. Any bullish earnings news could spark a sharp short-covering rally for shares GIMO off these extremely oversold levels.

If you're in the bull camp on GIMO, 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 $16 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 611,629 shares. If that breakout hits, then GIMO will set up to re-test or possibly take out its next major overhead resistance levels at $18 to its recent gap-down-day high of around $20 a share. Any high-volume move above $20 will then give GIMO a chance to do some gap filling.

I would avoid GIMO or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 52-week low at $14.75 a share with high volume. If we get that move, then GIMO will set up to enter new all-time-low territory, which is bearish technical price action. Some possible downside targets off that move are $12 to $11 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.