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5 Hated Stocks Poised for Big Short Squeezes

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.

Short-squeeze candidates are something that

. These are also the exact type of stocks that I love to trade and alert my subscribers about in real time.

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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks with serious upside potential in the next 12-months. Learn more.

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 very bullish technically 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 Wall Street doesn't like the numbers or guidance.

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, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.


Citrix Systems

My first earnings short-squeeze trading opportunity is business software and services player Citrix Systems (CTXS) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Citrix Systems to report revenue of $827.21 million on earnings of $1.19 per share.

The current short interest as a percentage of the float for Citrix Systems is notable at 5.5%. That means that out of the 154.90 million shares in the tradable float, 8.53 million shares are sold short by the bears.

From a technical perspective, Citrix Systems 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, after shares found some buying interest at $80.60 to $81.36 a share over the last month and change. Following that potential bottom, shares of Citrix Systems have now started to spike higher and move back above the 20-day moving average of $84.47 a share. That spike is quickly pushing this stock within range of triggering a near-term breakout trade post-earnings.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks with serious upside potential in the next 12-months. Learn more.

If you're bullish on Citrix Systems, 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 $85.55 a share and then above more resistance at $86.19 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.26 million shares. If that breakout fires off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $89.50 to its 52-week high of $90 a share, or even $95 to $100 a share.

I would simply avoid Citrix Systems or look for short-biased trades if after earnings it fails to trigger that breakout...


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