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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.

Sears Hometown and Outlet Stores

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My first earnings short-squeeze trade idea is department stores operator Sears Hometown and Outlet Stores (SHOS) - Get Sears Hometown & Outlet Stores, Inc. Report , which is set to release numbers on Thursday before the market open. There are currently no analysts' estimates available for Sears Hometown and Outlet Stores.

The current short interest as a percentage of the float for Sears Hometown and Outlet Stores is pretty high at 7.1%. That means that out of the 11.08 million shares in the tradable float, 792,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.1%, or by about 38,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily spike sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, Sears Hometown and Outlet Stores is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways and consolidating over the last month and change, with shares moving between $5.06 on the downside and around $7 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could easily trigger a big breakout trade for shares of Sears Hometown and Outlet Stores.

If you're bullish on Sears Hometown and Outlet Stores, 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 $6.34 to its 50-day moving average of $6.59 a share and then above $7 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 57,754 shares. If that breakout kicks off 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 $7.84 to $8.25, or even around $9 a share.

I would simply avoid Sears Hometown and Outlet Stores 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 $5.50 to its new 52-week low of $5.06 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.

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Five Below

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Another potential earnings short-squeeze play is specialty value retailer Five Below (FIVE) - Get Five Below, Inc. Report , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Five Below to report revenue $323.74 million on earnings of 76 cents per share.

The current short interest as a percentage of the float for Five Below is extremely high at 21.9%. That means that out of the 52.66 million shares in the tradable float, 11.55 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Five Below could easily surge sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Five Below 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 five months, with shares moving higher off its low of $26.95 a share to its recent high of $40.50 a share. During that uptrend, shares of Five Below 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 Five Below, 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 $40.50 to its 52-week high of $41.47 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.18 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 $43.75 to $47.89 a share.

I would simply avoid Five Below 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 $37.46 to $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 its 50-day moving average of $36.29 to its 200-day moving average of $35.15 a share.

Spark Energy

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Another potential earnings short-squeeze candidate is independent retail energy services player Spark Energy (SPKE) - Get Spark Energy, Inc. Class A Report , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Spark Energy to report revenue of $106.60 million on earnings of 53 cents per share.

The current short interest as a percentage of the float for Spark Energy is rather high at 9.6%. That means that out of the 2.33 million shares in the tradable float, 255,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4%, or by about 8,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings as the bears are sent scrambling to cover some of their positions.

From a technical perspective, Spark Energy is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has recently formed a double bottom chart pattern, after shares found some buying interest at $22.18 to around $22 a share. Following that potential bottom, shares of Spark Energy have now started to spike higher, and it's quickly trending within range of triggering a major breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on Spark Energy, 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 $24.25 to $25.31 a share high volume. Look for volume on that move that hits near or above its three-month average action of 71,138 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 $26.23 to $27.23, or even its 52-week high of $27.62 a share. Any high-volume move abode $27.62 will then give this stock a chance to tag and take out $30 a share.

I would avoid Spark Energy 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 $23 to $22 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 $20 to its 200-day moving average of $18.15 a share.

PVH

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Another earnings short-squeeze prospect is apparel company operator PVH (PVH) - Get PVH Corp. Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect PVH to report revenue of $2.07 billion on earnings of $1.46 per share.

The current short interest as a percentage of the float for PVH is notable at 2%. That means that out of 81.67 million shares in the tradable float, 1.49 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 31.5%, or by about 358,000 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 run to cover some of their trades.

From a technical perspective, PVH is currently trending above its 50-day moving average and just 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 recent low of $64.13 a share to its high of $90.81 a share. During that uptrend, shares of PVH 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 bullish on PVH, 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 at $90.81 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.19 million 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 $94.83 to its 200-day moving average of $95.41, or even $96 to $100 a share.

I would simply avoid PVH 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 its 20-day moving average of $85.15 a share to some more support at $83.11 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 $80 to its 50-day moving average of $77.26 a share.

KB Home

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My final earnings short-squeeze trading opportunity is homebuilder KB Home (KBH) - Get KB Home Report , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect KB Home to report revenue of $633.98 million on earnings of 11 cents per share.

The current short interest as a percentage of the float for KB Home is extremely high at 28.1%. That means that out of the 80.45 million shares in the tradable float, 22.66 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of KB Home could easily soar sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, KB Home is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last two months, with shares moving higher off its low of $9.34 a share to its recent high of $13.89 a share. During that uptrend, shares of KB Home 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 near-term breakout trade post-earnings.

If you're in the bull camp on KB Home, 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 $13.89 to $14.47 a share and then above more resistance at $14.63 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 4.54 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 levels at $15.06 to $15.46, or even $16.69 to $17.32 a share.

I would avoid KB Home or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back its 20-day moving average of $13.03 a share to some more near-term support at $12.73 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 $11.45 to $11 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.