Stock Quotes in this Article: AVAV, GBX, ISCA, SNX, UNF

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.

Greenbrier

My first earnings short-squeeze trade idea is railroad freight car designer and manufacturer Greenbrier (GBX), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Greenbrier to report revenue of $571.07 million on earnings of 74 cents per share.

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Recently, KeyBanc increased its price target on shares of Greenbrier to $64 from $56 after the firm analyzed data from the railcar industry and said it is more confident that U.S. railcar sales will rise further. As a result, the firm believes that analysts' consensus estimates for Greenbrier are set to increase. The firm also believes that new regulations are likely to drive increased orders going forward. Wells Fargo also raised its price target on the stock to $68 to $70 from $54 to $56.

The current short interest as a percentage of the float for Greenbrier Companies very high at 17.5%. That means that out of the 22.40 million shares in the tradable float, 3.99 million shares are sold short by the bears. This is a high short interest on a stock with a very low tradable float. Any bullish earnings news could easily set off a large short-squeeze post-earnings as the bears jump to cover some of their bets.

From a technical perspective, GBX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last six months, with shares moving higher from its low of $30.59 to its recent high of $62.96 a share. During that uptrend, shares of GBX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GBX within range of triggering a big breakout trade post-earnings.

If you're bullish on GBX, 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 $60 to its 52-week high of $62.96 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 599,414 shares. If that breakout kicks off post-earnings, then GBX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $70 to $75 a share.

I would simply avoid GBX 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 $54.14 to more key near-term support at $54 a share with high volume. If we get that move, then GBX will set up to re-test or possibly take out its next major support levels at $50 to $45 a share.

Synnex

Another potential earnings short-squeeze play is business process services player Synnex (SNX), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Synnex to report revenue $3.17 billion on earnings of $1.36 per share.

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The current short interest as a percentage of the float for Synnex is pretty high at 6.8%. That means that out of the 27.92 million shares in the tradable float, 1.89 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.2%, or by about 23,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of SNX could easily spike sharply higher post-earnings as the bear rush to cover some of their positions.

From a technical perspective, SNX 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 month and change, with shares moving higher from its low of $59.30 to its intraday high of $74.26 a share. During that move, shares of SNX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now started to push shares of SNX within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on SNX, 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 $77.50 to its 52-week high of $79.44 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 236,665 shares. If that breakout hits post-earnings, then SNX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $90 to $100 a share.

I would simply avoid SNX 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 $70 a share with high volume. If we get that move, then SNX will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $66.72 to its 200-day moving average of $63.42 a share.

International Speedway

Another potential earnings short-squeeze candidate is motorsports-themed entertainment activities promoter International Speedway (ISCA), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect International Speedway to report revenue of $186.34 million on earnings of 49 cents per share.

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The current short interest as a percentage of the float for International Speedway is notable at 4.2%. That means that out of the 32.22 million shares in the tradable float, 1.34 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.6%, or by about 47,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of ISCA could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, ISCA is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock is just starting to bounce higher right above its 20-day moving average of $32.74 a share. This bounce is starting to push shares of ISCA within range of triggering a near-term breakout trade post-earnings.

If you're bullish on ISCA, 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 $34.69 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 117,516 shares. If that breakout gets set off post-earnings, then ISCA will set up to re-test or possibly take out its 52-week high of $38.01 a share. Any high-volume move above that level will then give ISCA a chance to tag or trend north of $40 a share.

I would avoid ISCA 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 $32.74 a share with high volume. If we get that move, then ISCA will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $31.42 a share to $30.22 to its 52-week low of $29.90 a share.

AeroVironment

Another earnings short-squeeze prospect is aerospace and defense products and services player AeroVironment (AVAV), which is set to release numbers on next Tuesday after the market close. Wall Street analysts, on average, expect AeroVironment to report revenue of $69.62 million on earnings of 22 cents per share.

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The current short interest as a percentage of the float for AeroVironment sits at 4%. That means that out of the 19 million shares in the tradable float, 691,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 10.2%, or by about 70,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of AVAV could easily soar sharply higher post-earnings as the bear rush to cover some of their trades.

From a technical perspective, AVAV 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 $30.20 to $31.15 a share. Following that bottom, shares of AVAV have started to bounce higher fright above its 50-day moving average and it's quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on AVAV, 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 $34 to $36.50 a share with strong volume. Look for volume on that move that hits near or above its three-month average action of 276,321 shares. If that breakout triggers post-earnings, then AVAV will set up to re-test or possibly take out its next major overhead resistance levels at $40 to its 52-week high at $41.67 a share. Any high-volume move above those levels will then give AVAV a chance to tag or trend north of $45 a share.

I would simply avoid AVAV or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 200-day moving average of $30.64 a share to more near-term support at $30.20 a share with high volume. If we get that move, then AVAV will set up to re-test or possibly take out its next major support levels at $27.34 to $27.11 a share, or even $24 a share.

UniFirst

My final earnings short-squeeze play is workplace uniforms and protective work wear clothing provider UniFirst (UNF), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect UniFirst to report revenue of $349.24 million on earnings of $1.42 per share.

The current short interest as a percentage of the float for UniFirst sits at 1.7%. That means that out of the 159.18 million shares in the tradable float, 2.26 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.8%, or by about 8,300 shares. If the bears get caught pressing their bets into a strong quarter, then shares of UNF could easily jump sharply higher post-earnings as the bears move to cover some of their positions.

From a technical perspective, UNF 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 three months, with shares moving higher from its low of $91.56 to its intraday high of $107.85 a share. During that uptrend, shares of UNF have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of UNF within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on UNF, 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 $110 to $112.67 a share and then $113.18 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 79,480 shares. If that breakout hits post-earnings, then UNF will set up to re-test or possibly take out its 52-week high of $117.91 a share. Any high-volume move into new 52-week-high territory will then give UNF a chance to tag $125 to $130 a share.

I would avoid UNF 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 $102.82 a share with high volume. If we get that move, then UNF will set up to re-test or possibly take out its next major support level at its 50-day moving average of $99.06 a share to $98 a share. Any high-volume move below those levels will then give UNF a chance to tag $94 to $92 a share, or even its 52-week low of $91.45 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.