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 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.

Cree

My first earnings short-squeeze trade idea is semiconductor player Cree  (CREE - Get Report), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Cree to report revenue of $378.92 million on a loss of 3 cents per share.

The current short interest as a percentage of the float for Cree is very high at 19.7%. That means that out of the 107.45 million shares in the tradable float, 21.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.7%, or by about 345,000 shares. If bears get caught pressing their bets into a bullish quarter, then this stock could easily jump sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Cree is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a triple bottom chart pattern, after shares found buying interest at $23.63, $23.68 and $24.02 a share. Following that bottom, shares of Cree have started to spike higher and move within range of triggering a big breakout trade post-earnings.

If you're bullish on Cree, 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 $25.97 to its 50-day moving average of $27.10 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.93 million shares. If that breakout gets set off post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its gap-down-day high from June at $28.50 a share. Any high-volume move above that level will then give this stock a chance to re-fill some of its previous gap-down-day zone that started near $31 a share.

I would simply avoid Cree 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 $24.02 to $23.86 a share and then below its 52-week low of $23.63 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. Some possible downside targets off that move are $20 to $18 a share.

King Digital

Another potential earnings short-squeeze play is interactive entertainment player King Digital  (KING), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect King Digital to report revenue $490.03 million on earnings of 43 cents per share.

The current short interest as a percentage of the float for King Digital is extremely high at 28.7%. That means that out of the 78.13 million shares in the tradable float, 21.03 million shares are sold short by the bears. If this company can produce the earnings news the bulls are looking for, then shares of King Digital could easily rip sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, King Digital is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock spiked higher on Monday back above its 20-day moving average of $15.63 a share. That spike is now starting to push shares of King Digital within range of triggering a near-term breakout trade post-earnings.

If you're in the bull camp on King Digital, 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 $16 to $16.14 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.87 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 $17.55 to its 52-week high of $18.49 a share.

I would simply avoid King Digital or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 50-day at $14.92 and its 200-day at $14.64 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 $13.11 to its 52-week low of $10.68 a share.

Opower

Another potential earnings short-squeeze candidate is cloud-based software provider Opower (OPWR), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Opower to report revenue of $35.29 million on a loss of 16 cents per share.

The current short interest as a percentage of the float forO power is extremely high at 22.23%. That means that out of the 26.17 million shares in the tradable float, 5.81 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12%, or by around 624,000 shares. If bears get caught pressing their bets into a strong quarter, then this stock could easily spike sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Opower is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending for the last two months, with shares moving lower from its high of $12.97 to its recent low of $9.29 a share. During that downtrend, shares of Opower have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now entered oversold territory, since its current relative strength index reading is 28.3 Oversold can always get more oversold, but it's also an area where a stock can make a powerful bounce higher from.

If you're bullish on Opower, 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 $10.32 to its 20-day moving average of $10.57 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 232,878 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 $11.33 to $12.11. or even its 200-day moving average of $12.53 to $13 a share.

I would avoid Opower 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 $9.29 to its 52-week low of $8.70 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.

Communications Sales & Leasing

Another earnings short-squeeze prospect is real estate investment trust Communications Sales & Leasing  (CSAL), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Communications Sales & Leasing to report revenue of $174.69 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for Communications Sales & Leasing is pretty high at 9.9%. That means that out of 120.08 million shares in the tradable float, 11.94 million shares are sold short by the bear. If this company can deliver the earnings news the bulls are looking for, then shares of Communications Sales & Leasing could easily rip sharply higher post-earnings as the bears scramble to cover some of the trades.

From a technical perspective, Communications Sales & Leasing is currently trending below both its 50-day and 20-day moving averages, which is bearish. This stock has been downtrending badly over the last three months and change, with shares moving sharply lower from its high of $34.08 to its recent low of $20.35 a share. During that downtrend, shares of Communications Sales & Leasing have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to rebound off that $20.35 low and it's beginning to move within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Communications Sales & Leasing, 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 $22.42 to its 50-day moving average of $23.87 and then above more resistance at $24.41 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.02 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 $26 to $27.28, or even $28 to $30 a share.

I would simply avoid Communications Sales & Leasing or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its all-time low of $20.35 a share with high volume. If we get that move, then this stock will set up to enter new all-time-low territory, which is bearish technical price action. Some possible downside targets off that move are $18 to $16 a share.

Fossil Group

My final earnings short-squeeze trading opportunity is consumer goods player Fossil Group  (FOSL - Get Report), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Fossil Group to report revenue of $748.98 million on earnings of 82 cents per share.

The current short interest as a percentage of the float for Fossil Group is extremely high at 23.9%. That means that out of the 38.48 million shares in the tradable float, 9.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.9%, or by 260,00 shares. If bears get caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, Fossil Group is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly over the last three months and change, with shares falling lower from its high of $86.50 its recent low of $63.38 a share. During that downtrend, this stock has been making mostly lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on Fossil Group, 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 $65 to its 20-day at $67.62 a share and then above its 50-day at $69.75 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.02 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 $72 to $73.50, or even $80 a share.

I would avoid Fossil Group or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its 52-week low of $63.38 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. Some possible downside targets off that move are $55 to $50 a share.

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