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 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.

Lululemon Athletica

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My first earnings short-squeeze play is athletic apparel designer and manufacturer Lululemon Athletica (LULU) - Get Report , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Lululemon Athletica to report revenue $693.38 million on earnings of 80 cents per share.

The current short interest as a percentage of the float for Lululemon Athletica is very high at 18.5%. That means that out of the 108.13 million shares in the tradable float, 20 million shares are sold short by the bears. If this company can produce the earnings news the bulls are looking for, then shares of Lululemon Athletica can easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Lululemon Athletica is currently trending above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last four months, with shares moving higher off its 52-week low of $43.14 to its recent high of $64.99 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on Lululemon Athletica, then I would wait until after its report and look for long-biased trades if this stock manages to take out its 20-day moving average of $62.05 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.60 million 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 $65 to $67, or even $69 to $70 a share.

I would simply avoid Lululemon Athletica 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 $58.76 a share to its 200-day moving average of $57.60 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 $54 to $53, or even $52 to $51 a share.

BlackBerry

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Another potential earnings short-squeeze trade idea is global wireless communications solutions provider BlackBerry (BBRY) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect BlackBerry to report revenue $563.18 million on a loss of 9 cents per share.

The current short interest as a percentage of the float for BlackBerry is very high at 14.2%. That means that out of the 524.87 million shares in the tradable float, 74.69 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1%, or by about 757,000 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 run to cover some of their positions.

From a technical perspective, BlackBerry is currently trending 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 $6.33 to $6.39 a share. Following that potential bottom, shares of BlackBerry have started to uptrend with the stock hitting a recent high of $8.36 a share. That move has now pushed this stock within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on BlackBerry, 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 its 200-day moving average of $7.63 and its 20-day moving average of $7.91 a share and then above more key resistance levels at $8.20 to $8.36 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 6.16 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 $9 to $9.50 a share.

I would simply avoid BlackBerry or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back some near-term support levels at $7.43 to its 50-day moving average of $7.39 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 $7 to $6.39, or even $6.33 to $6 a share.

Paychex

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Another potential earnings short-squeeze candidate is staffing and outsourcing services player Paychex (PAYX) - Get Report , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Paychex to report revenue of $751.20 million on earnings of 50 cents per share.

The current short interest as a percentage of the float for Paychex stands at 4.9%. That means that out of the 322.36 million shares in the tradable float, 16.05 million shares are sold short by the bears. This isn't a huge short interest, but it's more than enough to spark a decent short-covering rally post-earnings if the bulls get the news they're looking for.

From a technical perspective, Paychex 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 two months, with shares moving higher off its low of $43.35 to its recent high of $54.47 a share. During that uptrend, shares of Paychex have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on Paychex, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high of $54.78 a share high volume. Look for volume on that move that hits near or above its three-month average action of 2.79 million shares. If that breakout takes hold 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 $60 to $65, or even $70 a share.

I would avoid Paychex or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $53.18 a share to some more support at $51.50 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 50-day moving average of $50.46 a share to its 200-day moving average of $48.99 a share.

BioTime

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Another earnings short-squeeze prospect is biotechnology player BioTime (BTX) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect BioTime to report revenue of $1.50 million on a loss of 16 cents per share.

The current short interest as a percentage of the float for BioTime is very high at 17.1%. That means that out of 46.94 million shares in the tradable float, 8.05 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 1.3%, or by about 102,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, BioTime is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last two months and change, with shares moving higher off its new 52-week low of $2.02 a share to its recent high of $3 a share. During that uptrend, shares of BioTime have been making mostly higher lows and higher highs, which is bullish technical price action.

If you're bullish on BioTime, 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 its 20-day moving average of $2.60 a share to more resistance at $2.72 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 234,884 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 $3 to its 200-day moving average of $3.03, or even $3.50 to $4 a share.

I would simply avoid BioTime or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support levels at $2.41 to $2.28 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 $2.15 to its new 52-week low of $2.02 a share.

Sonic

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My final earnings short-squeeze trading opportunity is restaurants player Sonic (SONC) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Sonic to report revenue of $127.73 million on earnings of 16 cents per share.

The current short interest as a percentage of the float for Sonic is pretty high at 14%. That means that out of the 43.84 million shares in the tradable float, 6.14 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares o Sonic could easily spike sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Sonic is currently trending above its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last two months, with shares moving higher off its low of $24.91 a share to its recent high of $32.94 a share. During that uptrend, shares of Sonic have been consistently making 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 post-earnings.

If you're in the bull camp on Sonic, 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 $32.94 to $33.05 a share and then above its 52-week high of $34.23 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.23 million shares. If that breakout triggers post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance level at $36.22 a share. Any high-volume move above $36.22 will then give this stock a chance to make a run at tagging or taking out $40 a share.

I would avoid Sonic or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 20-day moving average of $31.24 a share to some more near-term support levels at $31 to $30.31 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 50-day moving average of $29.54 a share to its 200-day moving average of $28.59 a share, or even $27 to $25 a share.

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