Stock Quotes in this Article: KORS, BLOX, WDAY, VEEV, VMEM

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.

Workday

My first earnings short-squeeze play is enterprise cloud applications player Workday (WDAY), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Workday to report revenue of $152.43 million on a loss of 15 cents per share.

Just recently, Oppenheimer said the retreat in the stock has created a buying opportunity for long-term growth investors. Oppenheimer expects Workday to report roughly in-line first-quarter revenue and a lower-than-expected per-share loss, and it predicts that the company will benefit from stronger than expected demand from financial customers in the longer term.

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The current short interest as a percentage of the float for Workday is pretty high at 10.9%. That means that out of the 93.47 million shares in the tradable float, 9.04 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 16.2%, or by about 1.25 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of WDAY could easily explode sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, WDAY 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 over the last few weeks, with shares moving higher from $67.87 to its intraday high of $82.05 a share. During that uptrend, shares of WDAY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of WDAY within range of triggering a major breakout trade post-earnings.

If you're bullish on WDAY, 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 its 200-day of $82.91 to $83.16 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.84 million shares. If that breakout kicks off post-earnings, then WDAY will set up to re-test or possibly take out its next major overhead resistance levels at $92 to $96.49 a share. Any high-volume move above those levels will then give WDAY a chance to tag $100 to $105 a share.

I would simply avoid WDAY 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 $75 a share with high volume. If we get that move, then WDAY will set up to re-test or possibly take out its next major support levels at $67.87 to $65.75 a share. Any high-volume move below those levels will then give WDAY a chance to tag its next major support levels at $64.21 to its 52-week low of $59.87 a share.

Violin Memory

Another potential earnings short-squeeze play is memory-based storage systems developer and supplier Violin Memory (VMEM), which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Violin Memory to report revenue $23.80 million on a loss of 25 cents per share.

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The current short interest as a percentage of the float for Violin Memory is rather high at 10.4%. That means that out of the 66.95 million shares in the tradable float, 6.85 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.7%, or by about 367,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of VMEM could easily spike sharply higher post-earnings as the shorts jump to cover some of their positions.

From a technical perspective, VMEM is currently trending below its 50-day moving average, which is bearish. This stock has been trending sideways for the last few weeks, with shares moving between $3.04 on the downside and $3.34 on the upside. Any high-volume move above the upper-end of its recent range post-earnings could trigger a big breakout trade for shares of VMEM.

If you're in the bull camp on VMEM, 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 $3.34 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 765,258 shares. If that breakout hits post-earnings, then VMEM will set up to re-test or possibly take out its next major overhead resistance levels at its 50-day moving average of $3.81 to $4.08 a share. Any high-volume move above those levels will then give VMEM a chance to tag its next major overhead resistance level at $4.63 a share.

I would simply avoid VMEM 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 $3.04 a share with high volume. If we get that move, then VMEM will set up to re-test or possibly take out its all-time low of $2.50 a share.

Michael Kors

Another potential earnings short-squeeze candidate is specialty retailer player Michael Kors (KORS), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Michael Kors to report revenue of $815.30 million on earnings of 68 cents per share.

Just recently, Piper Jaffray recommended buying shares of Michael Kors ahead of the company's earnings report. Piper believes Kors can handily beat its 65 cents-per-share earnings estimate, and it reiterated an overweight rating on the stock with a $114 price target per share.

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The current short interest as a percentage of the float for Michael Kors is notable at 3.4%. That means that out of the 162.16 million shares in the tradable float, 6.25 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of KORS could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, KORS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently ripped higher right off its 50-day moving average of $92.46 a share and it broke out above some near-term overhead resistance levels at $94.85 to $96.10 as share. That move is quickly pushing shares of KORS within range of triggering a much bigger breakout trade post-earnings.

If you're bullish on KORS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key overhead resistance levels at $100 to its all-time high at $101.04 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.22 million shares. If that breakout starts post-earnings, then KORS will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that move are $115 to $120 a share, or even $125 a share.

I would avoid KORS 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 $94 to its 50-day moving average of $92.46 a share with high volume. If we get that move, then KORS will set up to re-test or possibly take out its next major support levels at $90.10 to $85.75 a share, or even its 200-day moving average of $83.91 a share.

Veeva Systems

Another earnings short-squeeze prospect is health care information services player Veeva Systems (VEEV), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Veeva Systems to report revenue of $63.40 million on earnings of 5 cents per share.

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The current short interest as a percentage of the float for Veeva Systems is extremely high at 24%. That means that out of the 36.89 million shares in the tradable float, 8.90 million shares are sold short by the bears. This is a big short interest on a stock with a relatively low float. Any bullish earnings news could easily spark a large short-covering rally post-earnings as the bears rush to cover some of their trades.

From a technical perspective, VEEV is currently trending below its 50-day moving average, which is bearish. This stock recently hit an all-time low of $17.11 a share, after the stock fell from its March high of $39.81 a share. Following that low, shares of VEEV have now started to rebound and break out above some near-term overhead resistance levels at $19.15 to $20.42 a share. That move is starting to push shares of VEEV within range of triggering an even bigger breakout trade post-earnings.

If you're bullish on VEEV, then I would wait until after its report and look for long-biased trades if this stock manages to clear its 50-day moving average of $22.80 a share and then once it breaks out above some more key overhead resistance levels at $23.59 to $24.25 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.36 million shares. If that breakout triggers, then VEEV will set up to re-test or possibly take out its next major overhead resistance level at $29.06 a share.

I would simply avoid VEEV 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 $19.15 to $19 a share with high volume. If we get that move, then VEEV will set up to re-test or possibly take out its next major support level at its all-time low of $17.11 a share.

Infoblox

My final earnings short-squeeze play is network control solutions player Infoblox (BLOX), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Infoblox to report revenue of $61.65 million on earnings of 3 cents per share.

The current short interest as a percentage of the float for Infoblox stands at 5.3%. That means that out of the 49.44 million shares in the tradable float, 2.55 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 33.5%, or by about 639,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of BLOX could easily surge sharply higher post-earnings as the shorts move to cover some of their positions.

From a technical perspective, BLOX is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock recently formed a triple bottom chart pattern at $17.10, $17.52 and $17.15 a share. Shares of BLOX have now started to uptrend off that $17.15 low and it's pushed back above its 50-day moving average. That move now has shares of BLOX trending within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on BLOX, 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 $20.75 to $21.59 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.32 million shares. If that breakout hits post-earnings, then BLOX will set up to re-test or possibly take out its next major overhead resistance levels at $23.89 to $24.69 a share. Any high-volume move above $24.69 will then give BLOX a chance to re-fill some of its previous gap-down-day zone from February that started near $34 a share.

I would avoid BLOX 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 $19.62 a share with high volume. If we get that move, then BLOX will set up to re-test or possibly take out its next major support levels at $17.85 to its 52-week low of $17.10 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.