Updated to add technical charts.

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 I tweet about on a regular basis. These are also the exact type of stocks that I love to trade and alert to my subscribers 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.

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.

Fitbit

Image placeholder title

My first earnings short-squeeze trade idea is health and fitness tracking devices player Fitbit (FIT) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Fitbit to report revenue $440.86 million on earnings of 2 cents per share.

The current short interest as a percentage of the float for Fitbit is extremely high at 29.4%. That means that out of the 71.30 million shares in the tradable float, 36.70 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 7.1%, or by about 2.42 million 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, Fitbit 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 strong over the last three months, with shares moving higher off its low of $11.91 a share to its recent high of $18.85 a share. During that uptrend, shares of Fitbit have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on Fitbit, 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 $18.85 to $19.34 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 9.65 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 at $24 to its 200-day moving average of $27.92 a share.

I would simply avoid Fitbit 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 $16.95 a share to its 20-day moving average of $16.74 a share. 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 $14.97 to $14.40, or even $12.93 to $12.52 a share.

Habit Restaurants

Image placeholder title

Another potential earnings short-squeeze play is fast casual restaurant player Habit Restaurants (HABT) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Habit Restaurants to report revenue $67.70 million on earnings of 9 cents per share.

The current short interest as a percentage of the float for Habit Restaurants is extremely high at 44.1%. That means that out of the 10.80 million shares in the tradable float, 4.76 million shares are sold short by the bears. This is a huge short-interest on a stock with a very low tradable float. Any bullish earnings news could easily set off a monster short-squeeze for shares of Habit Restaurants post-earnings that sends the bears scrambling to cover some of their positions.

From a technical perspective, Habit Restaurants is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last two months, with shares moving lower off its high of $21.79 a share to its recent low of $16.52 a share. During that downtrend, shares of Habit Restaurants have been consistently making lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to rebound off that $16.52 low and it's quickly moving within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on Habit Restaurants, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $17.63 a share and then above more key resistance levels at $18 to its 50-day moving average of $18.72 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 410,597 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 $19.50 to $21, or even $22 to its 200-day moving average of $22.64 a share.

I would simply avoid Habit Restaurants or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $16.52 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory, which is bearish technical price action.

Atwood Oceanics

Image placeholder title

Another potential earnings short-squeeze candidate is offshore drilling contractor Atwood Oceanics (ATW) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Atwood Oceanics to report revenue of $291.14 million on earnings of $1.58 per share.

The current short interest as a percentage of the float for Atwood Oceanics is extremely high at 43%. That means that out of the 54.69 million shares in the tradable float, 23.52 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Atwood Oceanics could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Atwood Oceanics is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways and consolidating over the last two months, with shares moving between $7.52 a share on the downside and $10.79 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 Atwood Oceanics.

If you're bullish on Atwood Oceanics, 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 $10 to $10.32 a share and then above $10.38 to $10.79 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 4.78 million shares. If that breakout materializes post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $11.46 to its 200-day moving average of $12.89, or even $14 to $15 a share.

I would avoid Atwood Oceanics 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 $8.86 a share to its 50-day moving average of $8.64 a share and then above more key support levels at $8.05 to $7.52 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 $6.20 to $5.78, or even $5 a share.

Scientific Games

Image placeholder title

Another earnings short-squeeze prospect is gaming activities player Scientific Games (SGMS) - Get Report , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Scientific Games to report revenue of $693.88 million on a loss of 97 cents per share.

The current short interest as a percentage of the float for Scientific Games is very high at 50.9%. That means that out of 33.42 million shares in the tradable float, 17.01 million shares are sold short by the bear.

From a technical perspective, Scientific Games is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways and consolidating over the last two months, with shares moving between $8.41 a share on the downside and $10.75 a share on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could easily trigger a major breakout trade for shares of Scientific Games.

If you're bullish on Scientific Games, 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 $10.50 to $10.75 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.31 million shares. If that breakout takes hold post-earnings, then this stock will set up to re-fill some of its previous gap-down-day zone from November of last year that started near $13 a share.

I would simply avoid Scientific Games 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 $9.61 a share to its 50-day moving average of $9.42 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 $8.64 to $8.41, or even $6.50 a share.

Transocean

Image placeholder title

My final earnings short-squeeze trading opportunity is offshore contract drilling services player Transocean (RIG) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Transocean to report revenue of $1.14 billion on earnings of 31 cents per share.

The current short interest as a percentage of the float for Transocean is very high at 29.8%. That means that out of the 342.54 million shares in the tradable float, 102.26 million shares are sold short by the bears.

From a technical perspective, Transocean 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 month and change, with shares moving higher off its low of $8.34 a share to its recent high of $11.65 a share. During that uptrend, shares of Transocean 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 post-earnings.

If you're in the bull camp on Transocean, 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 $11.65 to $11.86 a share and then above its 200-day moving average of $12.32 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 18.48 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 at $13.50 to $14, or even $15 to $16 a share.

I would avoid Transocean 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 $9.96 a share to more support at $9.95 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 $9 to $8.34, or even its new 52-week low of $7.66 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.