DELAFIELD, Wis. (Stockpickr) -- 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 technically very bullish 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.

Greenbrier Companies

My first earnings short-squeeze trade idea is railroad freight car equipment player Greenbrier Companies (GBX - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Greenbrier Companies to report revenue of $540.52 million on earnings of 74 cents per share.

The current short interest as a percentage of the float for Greenbrier Companies is extremely high at 29.9%. That means that out of the 23.30 million shares in the tradable float, 6.98 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2%, or by around 135,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of GBX could easily rip sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, GBX 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 from its low of $42.62 to its recent high of $55.50 a share. During that uptrend, shares of GBX have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of GBX within range of triggering a near-term breakout trade post-earnings.

If you're bullish on GBX, then I would wait until after its report and look for long-biased trades if this stock manages to break out above both its 50-day moving average at $55.14 and its 200-day moving average at $58.39 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 1.05 million shares. If that breakout triggers post-earnings, then shares of GBX will set up to re-test or possibly take out its next major overhead resistance levels at $65 to $67.50 a share, or even $70 a share.

I would simply avoid GBX 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 $50 to $47.50 a share with high volume. If we get that move, then GBX will set up to re-test or possibly take out its next major support levels at $42.60 to $35 a share.

Micron Technology

Another potential earnings short-squeeze play is semiconductor player Micron Technology (MU - Get Report) , which is set to release its numbers on Tuesday after the market close Wall Street analysts, on average, expect Micron Technology to report revenue $4.62 billion on earnings of 92 cents per share.

The current short interest as a percentage of the float for Micron Technology is pretty high at 8.3%. That means that out of the 1.06 billion shares in the tradable float, 88.34 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of MU could easily rip sharply higher post-earnings as the bears rush to cover some of their bets.

From a technical perspective, MU is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending over the last three months, with shares moving higher from its low of $26.32 to its recent high of $36.59 a share. During that uptrend, shares of MU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of MU within range of triggering a big breakout trade post-earnings above some near-term overhead resistance levels.

If you're in the bull camp on MU, 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 $35.74 to its 52-week high at $36.59 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 22.40 million shares. If that breakout hits post-earnings, then MU will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $50 a share.

I would simply avoid MU 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 $32.37 to $31 a share with high volume. If we get that move, then MU will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $30.70 to $26.32 a share.

Supervalu

Another potential earnings short-squeeze candidate is grocery store player Supervalu (SVU) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Supervalu to report revenue of $4.09 billion on earnings of 14 cents per share.

The current short interest as a percentage of the float for Supervalu is pretty high at 7.3%. That means that out of the 180.99 million shares in the tradable float, 13.37 million shares are sold short by the bears. If this company can manage to deliver the earnings news the bulls are looking for, then shares of SVU could easily jump sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, SVU is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last two months and change, with shares moving higher from its low of $7.83 to its recent high of $9.95 a share. During that uptrend, shares of SVU have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SVU within range of triggering a big breakout trade post-earnings.

If you're bullish on SVU, 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 $9.95 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 2.30 million shares. If that breakout begins post-earnings, then SVU will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $12 to $13 a share.

I would avoid SVU 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 $9.05 a share with high volume. If we get that move, then SVU will set up to re-test or possibly take out its next major support levels at $8.72 to its 200-day moving average of $8.44 a share, or even $7.80 a share.

MSC Industrial Direct

Another earnings short-squeeze prospect is industrial equipment wholesaler MSC Industrial Direct (MSM - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect MSC Industrial Direct to report revenue of $732.87 million on earnings of 98 cents per share.

The current short interest as a percentage of the float for MSC Industrial Direct is rather high at 11.5%. That means that out of 44.10 million shares in the tradable float, 5.09 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.3%, or by about 555,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of MSM could easily soar sharply higher post-earnings as the shorts scramble to cover some of their positions.

From a technical perspective, MSM is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been consolidating and trending sideways over the last three months, with shares moving between $75.03 on the downside and $83.03 on the upside. Any high-volume move above the upper-end of its recent sideways trading chart pattern post-earnings could trigger a big breakout trade for shares of MSM.

If you're bullish on MSM, 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 $81 to $83.03 a share and then above its 200-day moving average of $83.87 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 494,457 shares. If that breakout develops post-earnings, then MSM will set up to re-test or possibly take out its next major overhead resistance levels at $88 to $92 a share, or even its 52-week high at $96.62 a share.

I would simply avoid MSM 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 $76.71 to $76 a share and below $75.03 a share with high volume. If we get that move, then MSM will set up to re-test or possibly take out its next major support levels at $72 to $70 a share, or even $67 a share.

Sonic

My final earnings short-squeeze play is quick-service drive-in restaurant 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 $133.90 million on earnings of 16 cents per share.

The current short interest as a percentage of the float for Sonic is decent at 9.7%. That means that out of the 49.97 million shares in the tradable float, 4.84 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 earnings news they're looking for.

From a technical perspective, SONC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly over the last six months, with shares moving higher from its low of $20.18 to its recent high of $27.97 a share. During that uptrend, shares of SONC have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SONC within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SONC, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its new 52-week high at $28 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 769,895 shares. If that breakout materializes post-earnings, then SONC will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $35 to $40 a share.

I would avoid SONC 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 50-day moving average of $26.13 to $25.19 a share with high volume. If we get that move, then SONC will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $22.67 to $20 a share.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com.

You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.