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.
My first earnings short-squeeze trade idea is wireless communications player CalAmp (CAMP) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect CalAmp to report revenue of $92.26 million on earnings of 27 cents per share.
The current short interest as a percentage of the float for CalAmp is pretty high at 11.5%. That means that out of the 35.36 million shares in the tradable float, 4.06 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.7%, or by about 143,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily spike sharply higher post-earnings as the bears move fast to cover some of their positions.
Another potential earnings short-squeeze play is business services player Cintas (CTAS) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Cintas to report revenue $1.28 billion on earnings of $1.08 per share.
The current short interest as a percentage of the float for Cintas stands at 5%. That means that out of the 84.74 million shares in the tradable float, 4.26 million shares are sold short by the bears.
From a technical perspective, Cintas 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 off its low of $87.27 a share to its recent high of $119.94 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action.
Another potential earnings short-squeeze candidate is consumer goods player McCormick (MKC) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect McCormick to report revenue of $1.09 billion on earnings of 94 cents per share.
The current short interest as a percentage of the float for McCormick is notable at 4.4%. That means that out of the 122.34 million shares in the tradable float, 5.42 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.4%, or by about 373,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily trend sharply higher post-earnings as the bears scramble to cover some of their trades.
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