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. ¿

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 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.

Scientific Games

My first earnings short-squeeze play is technology-based gaming and lottery products and services player Scientific Games(SGMS) - Get Report, which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Scientific Games to report revenue of $510.72 million on a loss of 60 cents per share.

The current short interest as a percentage of the float for Scientific Games is extremely high at 27.8%. That means that out of the 40.72 million shares in the tradable float, 11.33 million shares are sold short by the bears. If this company can produce the earnings news the bulls are looking for, then shares of SGMS could easily spike sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, SGMS is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways for the last month, with shares moving between $12.50 on the downside and $14.44 on the upside. Shares of SGMS are now starting to spike higher off the lower-end of its recent range and it's beginning to move close to triggering a big breakout trade above the upper-end of its sideways trending chart pattern post-earnings.

If you're bullish on SGMS, 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 at $14.26 to $14.44 a share and then above $15.66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 787,533 shares. If that breakout kicks off post-earnings, then shares of SGMS will set up to re-test or possibly take out its next major overhead resistance levels at its 52-week high of $17.25 to $19.50 a share.

I would simply avoid SGMS 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 $13.06 to its 50-day moving average of $13.03 a share with high volume. If we get that move, then SGMS will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $11.42 a share to $11.28 a share. If those levels get taken out with volume, then SGMS could easily trend back towards $10 a share.

Dicerna Pharmaceuticals

Another potential earnings short-squeeze play is biopharmaceutical stock Dicerna Pharmaceuticals(DRNA) - Get Report, which is set to release its numbers on Thursday after the market close. Wall Street analysts, on average, expect Dicerna Pharmaceuticals to report revenue $1.45 million on a loss of 57 cents per share.

The current short interest as a percentage of the float for Dicerna Pharmaceuticals is pretty high at 10%. That means that out of the 9.27 million shares in the tradable float, 928,000 shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. If this company can deliver the earnings news the bulls are looking for, then shares of DRNA could easily rip sharply higher post-earnings as the bears scramble to cover some of their bets.

From a technical perspective, DRNA is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending incredibly strong for the last four months, with shares moving sharply higher from its low of $8 to its recent high of $26.20 a share. During that uptrend, shares of DRNA have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of DRNA within range of triggering a major breakout trade post-earnings above some key near-term overhead resistance levels.

If you're in the bull camp on DRNA, 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 $26.19 to $26.20 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 188,974 shares. If that breakout materializes post-earnings, then DRNA will set up to re-test or possibly take out its next major overhead resistance levels at $32.50 to $35 a share.

I would simply avoid DRNA 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 $22.55 to its 50-day moving average of $21.10 a share and then below $20 a share with high volume. If we get that move, then DRNA will set up to re-test or possibly take out its next major support level at its 200-day moving average of $15.79 a share.

Kratos Defense & Security Solutions

Another potential earnings short-squeeze candidate is mission-critical products, solutions and services provider Kratos Defense & Security Solutions(KTOS) - Get Report, which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Kratos Defense & Security Solutions to report revenue of $231.68 million on earnings of 7 cents per share.

The current short interest as a percentage of the float for Kratos Defense & Security Solutions is pretty high at 9.4%. That means that out of the 44.90 million shares in the tradable float, 4.21 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.5%, or by about 140,000 shares. If the shorts get caught pressing their bets into a bullish quarter, then shares of KTOS could easily spike sharply higher post-earnings as the bears scramble cover some of their positions.

From a technical perspective, KTOS is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has recently pulled back off its high of $6.02 a share to its recent low of $5.50 a share. That low is right above the 50-day moving average of $5.31 for KTOS and its right above its recent breakout point from early February. Despite this pullback, shares of KTOS are still trending within range of triggering a near-term breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on KTOS, 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 $5.93 to $6.02 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 483,203 shares. If that breakout starts post-earnings, then KTOS will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $6.51 to $7 a share, or even $7.50 to $8 a share.

I would avoid KTOS 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 $5.31 a share to some more near-term support at around $5 a share with high volume. If we get that move, then KTOS will set up to re-test or possibly take out its next major support levels at $4.82 to $4.75 a share, or even $4.21 a share.

Fuel Systems Solutions

Another earnings short-squeeze prospect is alternative fuel components and systems player Fuel Systems Solutions (FSYS) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Fuel Systems Solutions to report revenue of $74.92 million on a loss of 20 cents per share.

The current short interest as a percentage of the float for Fuel Systems Solutions is pretty high at 9.4%. That means that out of 11.99 million shares in the tradable float, 1.13 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a large short-covering rally post-earnings for shares of FSYS that forces the bears to cover some of their trades.

From a technical perspective, FSYS is currently trending just above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last two months, with shares moving between $10.50 to $10 on the downside and $11.65 to $11.88 on the upside. Shares of FSYS are now trending within range of triggering a major breakout trade post-earnings above the upper-end of its recent sideways trading chart pattern.

If you're bullish on FSYS, 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 $11.26 to $11.64 a share and then above $11.88 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 101,941 shares. If that breakout gets started post-earnings, then FSYS will set up to re-test or possibly take out its next major overhead resistance levels at $14 to $14.30 a share.

I would simply avoid FSYS 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 $10.25 a share to some more near-term support at $9.50 a share with high volume. If we get that move, then FSYS will set up re-test or possibly take out its next major support levels at $8.60 to $8 a share.

J.G. Wentworth

My final earnings short-squeeze play is financial stock J.G. Wentworth (JGW) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect J.G. Wentworth to report revenue of $61.75 million on earnings of 25 cents per share.

The current short interest as a percentage of the float for J.G. Wentworth is notable at 6.8%. That means that out of the 12.80 million shares in the tradable float, 875,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.1%, or by about 50,000 shares. If the shorts get caught pressing their bets into a strong quarter, then shares of JGW could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, JGW is currently trending just above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $10.04 to $10 a share. That bottom formed right above JGW's 50-day moving average. Shares of JGW are now starting to spike a bit higher above those support levels and it's beginning to move within range of triggering a big breakout trade above some key near-term overhead resistance levels post-earnings.

If you're in the bull camp on JGW, 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 $10.64 to $10.67 a share and then above its 200-day moving average of $10.93 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 115,261 shares. If that breakout triggers post-earnings, then JGW will set up to re-test or possibly take out its next major overhead resistance levels at $11.66 to $11.74 a share, or even $13 to $14 a share.

I would avoid JGW or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below those recent double bottom support levels at around $10 a share with volume. If we get that move, then JGW will set up to re-test or possibly take out its next major support levels at $9.30 to $8.78 a share, or even its 52-week low of $8.65 a share. Any high-volume move below $8.65 will then give JGW a chance to trend back towards $8 a share.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.