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.

J.C. Penney

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My first earnings short-squeeze trade idea is department stores player J.C. Penney (JCP) - Get Report , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect J.C. Penney to report revenue of $3.99 billion on earnings of 23 cents per share.

The current short interest as a percentage of the float for J.C. Penney is very high at 16.6%. That means that out of the 28.06 million shares in the tradable float, 4.66 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of J.C. Penney could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, J.C. Penney 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 recent low of $6 a share to its high of $7.84 a share. During that uptrend, shares of J.C. Penney 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 bullish on J.C. Penney, 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 $7.84 to around $8 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 12.65 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 its 200-day moving average of $8.35 to $8.41, or even $9 to $9.40 a share.

I would simply avoid J.C. Penney 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 $7.33 to its 50-day moving average of $7.11 and below more near-term support at $6.88 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 level at its new 52-week low of $6 a share.

Zoe's Kitchen

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Another potential earnings short-squeeze trading opportunity is fast casual Mediterranean cuisine restaurant player Zoe's Kitchen (ZOES) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Zoe's Kitchen to report revenue $50.66 million on a loss of 6 cents per share.

The current short interest as a percentage of the float for Zoe's Kitchen is extremely high at 24.5%. That means that out of the 17.13 million shares in the tradable float, 4.20 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Zoe's Kitchen could easily spike sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Zoe's Kitchen is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last few weeks, with shares moving higher off its low of $23.17 to its intraday high on Tuesday of $29.21 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Zoe's Kitchen within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on Zoe's Kitchen, 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 $30.02 to around $32 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 392,495 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 levels at $34.50 to its 200-day moving average of $34.67, or even $36 to $38 a share.

I would simply avoid Zoe's Kitchen 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 $27.81 to its 20-day moving average of $26.97 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 $25 to its new 52-week low of $23.17 a share.

Air Methods

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Another potential earnings short-squeeze candidate is air medical emergency transport services and systems provider Air Methods (AIRM) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Air Methods to report revenue of $265.77 million on earnings of 65 cents per share.

The current short interest as a percentage of the float for Air Methods is extremely high at 32.3%. That means that out of the 35.80 million shares in the tradable float, 11.57 million shares are sold short by the bears. This stock sports a relatively low tradable float and a very high short interest. Any bullish earnings news could easily spark a monster short-squeeze for shares of Air Methods post-earnings that sends the bears running to cover some of their trades.

From a technical perspective, Air Methods is currently trending just above both its 50-day and 20-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last month and change, with shares moving between $35.52 on the downside and $40.58 on the upside. Any high-volume move above the upper-end of its sideways trending chart pattern post-earnings could spark a big breakout trade for shares of Air Methods.

If you're bullish on Air Methods, 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 $39.91 to $40.58 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 402,205 shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $42.50 to $44, or even $46 to $46.50 a share.

I would avoid Air Methods 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 $38.29 to $38 a share and then below more key support at $37 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 $36.17 to $35.52, or even $34.13 to its 52-week low of $32.81 a share.

Matador Resources

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Another earnings short-squeeze prospect is interdependent energy player Matador Resources (MTDR) - Get Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Matador Resources to report revenue of $75.06 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for Matador Resources is pretty high at 13.1%. That means that out of 74.20 million shares in the tradable float, 9.71 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 4.2%, or by about 393,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily soar sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Matador Resources is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending strong over the last month and change, with shares moving higher off its low of $11.13 to its recent high of $16.68 a share. During that uptrend, shares of Matador Resources 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 bullish on Matador Resources, 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 $16.68 to its 50-day moving average of $16.72 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.81 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 $19 to $20, or even $21.80 to its 200-day moving average of $22.37 a share.

I would simply avoid Matador Resources 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 its 20-day moving average of $15.06 to $14.62 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 $12.98 to its new 52-week low of $11.13 a share.

Diamond Resorts International

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My final earnings short-squeeze play is resorts operator Diamond Resorts International (DRII) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Diamond Resorts International to report revenue of $246.26 million on earnings of 38 cents per share.

The current short interest as a percentage of the float for Diamond Resorts International is very high at 48.7%. That means that out of the 50.70 million shares in the tradable float, 15.26 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Diamond Resorts International could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, Diamond Resorts International is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending over the last few weeks, with shares moving higher off its low of $16.19 to its recent high of $20.12 a share. During that uptrend, shares of Diamond Resorts International 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 near-term breakout trade post-earnings.

If you're in the bull camp on Diamond Resorts International, 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 $19.73 to $20.12 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 977,557 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 its 50-day moving average of $21.76 to $22, or even $23.40 to $24 a share.

I would avoid Diamond Resorts International 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 $18.36 to its 20-day moving average of $18.17 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 $17 to its new 52-week low of $16.19 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.