Stock Quotes in this Article: DATA, KWK, MYGN, TSLA, ZU

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.

Tableau Software

My first earnings short-squeeze play is business analytics software provider Tableau Software (DATA), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Tableau Software to report revenue of $63.04 million on a loss of 11 cents per share.

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The current short interest as a percentage of the float for Tableau Software is notable at 6.5%. That means that out of the 35.28 million shares in the tradable float, 2.24 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 47.5%, or by about 721,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of DATA could easily rip sharply higher post-earnings as the shorts jump to cover some of their bets.

From a technical perspective, DATA 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 two months, with shares moving lower from its high of $102.37 to its recent low of $53.64 a share. During that downtrend, shares of DATA have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on DATA, 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 $59.58 to $60 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.76 million shares. If that breakout gets underway post-earnings, then DATA will set up to re-test or possibly take out its next major overhead resistance levels at $68.63 a share to its 200-day moving average of $71.22 a share. Any high-volume move above those levels will then give DATA a chance to tag or take out its next major resistance level at $73.72 a share.

I would simply avoid DATA 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 $55 to $53.64 a share high volume. If that move hits, then DATA will set up to re-test or possibly take out its next major support levels at $48.27 to its 52-week low of $44 a share.

Quicksilver Resources

Another potential earnings short-squeeze trade idea is independent oil and gas player Quicksilver Resources (KWK), which is set to release its numbers on Tuesday before the market open. Wall Street analysts, on average, expect Quicksilver Resources to report revenue $105.26 million on a loss of 6 cents per share.

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The current short interest as a percentage of the float for Quicksilver Resources is extremely high at 54.5%. That means that out of the 86.40 million shares in the tradable float, 46.21 million shares are sold short by the bears. This is an enormous short interest on a stock with a reasonably low tradable float. If the bulls get the earnings news they're looking for, then shares of KWK could easily explode sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective KWK is currently trending above both its 50-day and 200-day moving averages, which is bullish. This sock has been uptrending strong for the last month and change, with shares moving sharply higher from its low of $2.38 to its recent high of $3.53 a share. During that uptrend, shares of KWK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of KWK within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on KWK, 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 $3.53 a share to its 52-week high at $3.67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.67 million shares. If that breakout kicks off post-earnings, then KWK will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $4.50 to $5 a share, or even $5.50 a share.

I would simply avoid KWK 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 $3.10 a share to its 50-day moving average of $2.91 a share with high volume. If we get that move, then KWK will set up to re-test or possibly take out its 200-day moving average of $2.55 a share.

Myriad Genetics

Another potential earnings short-squeeze candidate is molecular diagnostic player Myriad Genetics (MYGN), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Myriad Genetics to report revenue of $175.23 million on earnings of 45 cents per share.

The current short interest as a percentage of the float for Myriad Genetics is extremely high at 52%. That means that out of the 72.74 million shares in the tradable float, 37.92 million shares are sold short by the bears. This is a monster short interest on a stock with a relatively low tradable float. If Myriad Genetics can deliver the earnings news the bulls are looking for, then shares could explode sharply higher post-earnings as the bears move quick to get out of way of a potential short-squeeze.

From a technical perspective, MYGN is currently trending above its 50-day and its 200-day moving averages, which is bullish. This stock has consolidating and trending sideways over the last month, with shares moving between $36.82 on the downside and $42.50 on the upside. Any high-volume move above the upper-end of its recent sideways trading chart pattern post-earnings could trigger a major breakout trade for shares of MYGN.

If you're bullish on MYGN, 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 $42.50 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.24 million shares. If that breakout materializes post-earnings, then MYGN will set up to enter new 52-week-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 MYGN or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out its 50-day moving average of $37.49 a share to more near-term support at $36.82 a share with high volume. If we get that move, then MYGN will set up to re-test or possibly take out its next major support levels at $32.10 to its 200-day moving average of $29.40 a share.

Zulily

Another earnings short-squeeze prospect is online retailer player Zulily (ZU), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Zulily to report revenue of $233.58 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for Zulily is extremely high at 38.1%. That means that out of the 13.22 million shares in the tradable float, 5.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 19%, or by about 802,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of ZU could jump sharply higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, ZU is currently trending below its 50-day moving average, which is bearish. This stock has been downtrending badly over the last two months, with shares moving lower from its high of $73.50 to its recent low of $39.51 a share. During that downtrend, shares of ZU have been making mostly lower highs and lower lows, which is bearish technical price action. That said, ZU has now started to bounce off that $39.51 low and it's starting to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ZU, 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 $50.93 to $51.50 a share and then once it takes out its 50-day moving average of $53.34 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.25 million shares. If that breakout hits, then ZU will set up to re-test or possibly take out its next major overhead resistance levels at $57 to $60 a share, or even $65 a share.

I would simply avoid ZU or look for short-biased trades if after earnings it fails to trigger that breakout and then drops below some key near-term support at $45 a share with high volume. If we get that move, then ZU will set up to re-test or possibly take out its next major support levels at $39.51 to $38.45 a share, or even $35 a share.

Tesla Motors

My final earnings short-squeeze trade idea 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 $699.10 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for Tesla Motors is extremely high at 29%. That means that out of the 89.59 million shares in the tradable float, 25.08 million shares are sold short by the bears. This is a large short interest on a stock with a relatively low tradable float. 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 its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending over the last few weeks, with shares moving higher from its low of $190.50 to its intraday high of $217.69 a share. During that move, shares of TSLA have been making mostly higher lows and higher highs, which is bullish technical price action. That move is quickly pushing shares of TSLA within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on TSLA, 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 $219.33 a share and then once it clears its 50-day moving average of $222.41 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 9 million shares. If that breakout triggers post-earnings, then TSLA will set up to re-test or possibly take out its next major overhead resistance levels at $236 to $250 a share. Any high-volume move above those levels will then give TSLA a chance to re-test or possibly take out its all-time high at $265 a share.

I would 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 $200 to $190.50 a share with high volume. If we get that move, then TSLA will set up to re-test or possibly take out its next major support levels at $184.32 to its 200-day moving average of $174.98 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.