DELAFIELD, Wis. (Stockpickr) -- Recent strength in U.S.-based stocks is enough to make any short-seller nervous. With markets trending near or at new all-time highs, the bears have clearly been on the wrong side of the trade.

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.

With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.

Apollo Education Group

My first earnings short-squeeze trading opportunity is private education services provider Apollo Education Group  (APOL), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Apollo Education Group to report revenue of $584.61 million on a loss of 16 cents per share.

The current short interest as a percentage of the float for Apollo Education Group is pretty high at 9.5%. That means that out of the 97.11 million shares in the tradable float, 9.23 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of APOL could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, APOL is currently trending right at its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been trending sideways and consolidating over the last three months, with shares moving between $24.82 on the downside and around $29 on the upside. Shares of APOL recently spiked higher off its 50-day moving average and it's beginning to move within range of triggering a big breakout trade above the upper-end of its sideways trending chart pattern post-earnings.

If you're bullish on APOL, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $28.25 a share and then above more key resistance levels at $28.66 a share to its gap-down-day high from January at around $29 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.19 million shares. If that breakout hits post-earnings, then shares of APOL will set up to re-fill some of its previous gap-down-day zone from January that started near $33 a share.

I would simply avoid APOL 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 $25.92 to $25 a share and then below more support at $24.82 a share with high volume. If we get that move, then APOL will set up to re-test or possibly take out its next major support level at its 52-week low of $23.30 a share.

Five Below

Another potential earnings short-squeeze trade idea is U.S.-based specialty value retailer Five Below  (FIVE - Get Report), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Five Below to report revenue $262.40 million on earnings of 60 cents per share.

The current short interest as a percentage of the float for Five Below is very high a 18.1%. That means that out of the 51.96 million shares in the tradable float, 9.45 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of FIVE could easily jump sharply higher post-earnings as the bears scramble to cover some of their short positions.

From a technical perspective, FIVE is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its new 52-week low of $28.51 a share to last Friday's intraday high of $32.37 a share. During that uptrend, shares of FIVE have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FIVE within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on FIVE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $32.69 a share to some more key overhead resistance levels at $34.82 to $34.86 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.20 million shares. If that breakout begins post-earnings, then FIVE will set up to re-test or possibly take out its next major overhead resistance level at its gap-down-day high from January at around $37 a share. Any high-volume move above that level will then give FIVE a chance to re-fill its previous gap-down-day zone that started near $44 a share.

I would simply avoid FIVE 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 $30 to its new 52-week low of $28.51 a share with high volume. If we get that move, then FIVE will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $25 to $23 a share.

Pacific Sunwear of California

Another potential earnings short-squeeze candidate is specialty apparel retailer Pacific Sunwear of California  (PSUN), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pacific Sunwear of California to report revenue of $229.49 million on a loss of 11 cents per share.

The current short interest as a percentage of the float for Pacific Sunwear of California is pretty high at 11.5%. That means that out of the 34.64 million shares in the tradable float, 3.98 million shares are sold short by the bears. This is decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily set off a solid short-covering rally for shares of PSUN post-earnings as the bears move fast to cover some of their bets.

From a technical perspective, PSUN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways for the last three months, with shares moving between $2.30 on the downside and $3.05 on the upside. Shares of PSUN have recently started to spike higher back above its 50-day moving average of $2.82 a share and it's quickly moving within range of triggering a major breakout trade above the upper-end of its sideways trending chart pattern post-earnings.

If you're bullish on PSUN, 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 $3.03 to $3.05 a share and then above its 52-week high of $3.18 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 348,805 shares. If that breakout triggers post-earnings, then PSUN will set up to re-test or possibly take out its next major overhead resistance levels at $3.30 to $3.70 a share or even $4 a share.

I would avoid PSUN 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 $2.70 to $2.61 a share with high volume. If we get that move, then PSUN will set up to re-test or possibly take out its next major support level at its 200-day moving average of $2.18 a share.

Lindsay

Another earnings short-squeeze prospect is proprietary water management and road infrastructure products and services provider Lindsay  (LNN - Get Report), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Lindsay to report revenue of $156.65 million on earnings $1.13 per share.

The current short interest as a percentage of the float for Lindsay is extremely high at 29.8%. That means that out of 11.70 million shares in the tradable float, 3.49 million shares are sold short by the bears. This is a large short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a big short-covering rally post-earnings for shares of LNN that forces the bears to cover some of their trades.

From a technical perspective, LNN is currently below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $77.80 to its intraday high on last Friday of $83.03 a share. During that uptrend, shares of LNN have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of LNN within range of triggering a near-term breakout trade post-earnings.

If you're bullish on LNN, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $84.96 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 112,344 shares. If that breakout develops post-earnings, then LNN will set up to re-test or possibly take out its next major overhead resistance levels $89.93 to $90.02 a share, or even its 52-week high of $91.60 a share.

I would simply avoid LNN 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 $80 to $79 a share and then below its recent low of $77.80 a share with high volume. If we get that move, then LNN will set up re-test or possibly take out its next major support levels at $72.95 to $72.50 a share.

Francesca's Holdings

My final earnings short-squeeze play is chain of retail boutiques operator Francesca's Holdings  (FRAN - Get Report), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Francesca's Holdings to report revenue of $104.21 million on earnings of 20 cents per share.

The current short interest as a percentage of the float for Francesca's Holdings is very high at 13%. That means that out of the 39.80 million shares in the tradable float, 5.18 million shares are sold short by the bears. If Francesca's Holdings can produce the earnings news the bulls are looking for, then this stock could easily rip sharply higher post-earnings as the bears jump to cover some of their short positions.

From a technical perspective, FRAN is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last few weeks, with shares moving higher from its low of $13.95 to its recent high of $16.45 a share. During that uptrend, shares of FRAN have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FRAN within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're in the bull camp on FRAN, 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 $16.45 to $16.94 a share and then above more resistance at $17.43 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 582,095 shares. If that breakout develops post-earnings, then FRAN will set up to re-test or possibly take out its next major overhead resistance levels at $20 to $21.33 a share, or even $22.60 a share.

I would avoid FRAN 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 $15.63 a share with volume. If we get that move, then FRAN will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $14.25 a share to more support at $13.95 a share. Any high-volume move below those levels will then give FRAN a chance to tag $13 to $12 a share.

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