Short-sellers hate being caught short on 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 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.

GATX 

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My first earnings short-squeeze trade idea is railcar leasing player GATX (GATX) - Get Report , which is set to release numbers on Thursday before the market opens. Wall Street analysts, on average expect GATX to report revenue of $357.27 million on earnings of $1.03 per share.

The current short interest, as a percentage of the float for GATX, is extremely high at 30.7%. That means that out of the nearly 39.4 million shares in the tradable float, 12.1 million shares are sold short by the bears.

From a technical perspective, GATX is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been downtrending over the last month or so, with shares falling off its high of $64.46 a share to its recent low of $55.44 a share. During that downtrend, shares of GATX have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on GATX, 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 $58 to $59 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 471,651 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 its 20-day moving average of $61.03 a share to $63, or even its 52-week high of $64.46 a share.

I would simply avoid GATX, 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 $56.53 a share to more near-term support at $55.44 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $52 to $50, or even its 200-day moving average of $47.24 a share.

TAL Education Group

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Another potential earnings short-squeeze trading opportunity is China-based K-12 after-school tutoring services provider TAL Education Group (TAL) - Get Report , which is set to release numbers on Thursday before the market opens. Wall Street analysts, on average, expect TAL Education Group to report revenue of $230 million on earnings of 22 cents per share.

The current short interest, as a percentage of the float for TAL Education Group, is notable at 8%. That means that out of the 45.2 million shares in the tradable float, 3.63 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.7%, or by about 62,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, TAL Education Group is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month or so, with shares moving higher off its low of $66.11 a share to its recent high of $77.82 a share. During that uptrend, shares of TAL Education Group have been making mostly higher lows and higher highs, which is bullish technical price action. That strong uptrend has now pushed this stock within range of triggering a near-term breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on TAL Education Group, 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 to $79 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 474,803 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $80.50 to its 52-week high of $83.68 a share.

I would simply avoid TAL Education Group or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day moving average of $73.53 a share to its 20-day moving average of $72.11 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $66 to its 200-day moving average of $64.48 a share.

Fastenal

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Another potential earnings short-squeeze candidate is industrial equipment wholesale player Fastenal (FAST) - Get Report , which is set to release numbers on Wednesday before the market opens. Wall Street analysts, on average, expect Fastenal to report revenue of $951.7 million on earnings of 38 cents per share.

The current short interest, as a percentage of the float for Fastenal, sits at 6.8%. That means that out of the 287.9 million shares in the tradable float, 19.8 million shares are sold short by the bears.

From a technical perspective, Fastenal is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last two months, with shares moving between $46.10 a share on the downside and $49.31 a share on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Fastenal.

If you're bullish on Fastenal, 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 $48 to $49 a share and then above more resistance at $49.31 to its 52-week high of $49.99 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.56 million shares. If that breakout develops post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $55 to $60, or even $65 a share.

I would avoid Fastenal, or look for short-biased trades, if after earnings it fails to trigger that breakout and then drops back below both its 20-day moving average of $47.52 a share and its 50-day moving average of $46.52 a share and then below more near-term support at $46.10 a share with high volume. If we get that move, then this stock will set up to re-test, or possibly take out, its next major support levels at its 200-day moving average of $43.79 a share to $42 a share.

Atlassian

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Another earnings short-squeeze prospect is information technology services player Atlassian (TEAM) - Get Report , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Atlassian to report revenue of $144 million on earnings of 8 cents per share.

The current short interest, as a percentage of the float for Atlassian, stands at 7.8%. That means that out of 79 million shares in the tradable float, 3.89 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 20.8%, or by about 668,000 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 rush to cover some of their positions.

From a technical perspective, Atlassian is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month or so, with shares moving higher off its low of $23.80 a share to its recent high of $26.98 a share. During that uptrend, shares of Atlassian have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed this stock within range of triggering a big breakout trade above some key overhead resistance levels.

If you're bullish on Atlassian, then I would wait until after its report. Look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $26.98 to $27 a share, then above more resistance at $28 a share with high volume. Seek out volume on that move that hits near, or above, its three-month average action of 890,076 shares. If that breakout hits post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $29.50 to $29.70, or even $31.50 to $32.50 a share.

I would simply avoid Atlassian 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 $26.12 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at its 20-day moving average of $24.92 a share to $23.93, or even $23.80 to $23 a share.

Skyworks Solutions

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My final earnings short-squeeze play is semiconductor player Skyworks Solutions (SWKS) - Get Report , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Skyworks Solutions to report revenue of $902.7 million on earnings of $1.58 per share.

The current short interest, as a percentage of the float for Skyworks Solutions, sits at 6.4%. That means that out of the 185.1 million shares in the tradable float, 11.9 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.3%, or by about 147,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily jump sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Skyworks Solutions is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last month and change, with shares moving between $73.94 a share on the downside and $78.83 a share on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Skyworks Solutions.

If you're in the bull camp on Skyworks Solutions 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 $78.72 to $78.83 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.14 million shares. If that breakout develops post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $81.04 to $81.96, or even its 52-week high of $82.28 a share to $87 a share.

I would avoid Skyworks Solutions and look for short-biased trades if after earnings it fails to trigger that breakout and drops back below both its 20-day moving average of $76.72 a share to its 50-day moving average of $76.54 a share with high volume. If we get that move, then this stock will set up to re-test, or possibly take out, its next major support levels at $74.67 to $73.94, or even $71.65 to its 200-day moving average of $71.37 a share.

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