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.

Big Lots

My first earnings short-squeeze play is non-traditional discount retailer Big Lots  (BIG - Get Report), which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Big Lots to report revenue of $1.20 billion on earnings of 34 cents per share.

The current short interest as a percentage of the float for Big Lots is pretty high at 24.9%. That means that out of the 51.33 million shares in the tradable float, 12.81 million shares are sold short by the bears. This is a large short interest on a stock with relatively low tradable float. Any bullish earnings news could set off a large short-squeeze for shares of Big Lots post-earnings that sends the bears running to cover some of their trades.

From a technical perspective, Big Lots 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 month and change, with shares moving between $39.77 on the downside and $43.80 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Big Lots.

If you're bullish on Big Lots, 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 $43 to $43.80 a share and then above its 50-day moving average of $44.07 and its 200-day moving average of $45.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 997,733 shares. If that breakout gets underway post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $47 to $48, or even $49 to $50 a share.

I would simply avoid Big Lots 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 $39.77 to its 52-week low of $38.15 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 $32 to $30 a share.

Evine Live

Another potential earnings short-squeeze trade idea is digital commerce player Evine Live  (EVLV), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Evine Live to report revenue $156.02 million on a loss of 4 cents per share

The current short interest as a percentage of the float for Evine Live is pretty high at 9.4%. That means that out of the 38.51 million shares in the tradable float, 3.62 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13.7%, or by about 437,000 shares. If bears get caught pressing their bets into a strong quarter, then this stock could easily explode sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, Evine Live is currently trending above both its 50-day and 20-day moving averages, which is bullish. This stock has been attempting to carve out a major bottoming chart pattern over the last month and change, with shares finding buying interest at $2.11, $2.07 and $2.03 a share. This stock has now started to bounce a bit higher above those support levels and it's quickly moving within range of triggering a major breakout trade above some near-term overhead resistance levels post-earnings.

If you're in the bull camp on Evine Live, 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 $2.42 to its 50-day moving average of $2.48 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 371,834 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 $2.86 to $3.10, or even $3.50 to $4 a share.

I would simply avoid Evine Live or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $2.03 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 $1.60 to $1 a share.

Abercrombie & Fitch

Another potential earnings short-squeeze candidate is apparel specialty retailer Abercrombie & Fitch  (ANF - Get Report), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Abercrombie & Fitch to report revenue of $812.03 million on a loss of 4 cents per share.

The current short interest as a percentage of the float for Abercrombie & Fitch is extremely high at 32.8%. That means that out of the 68.44 million shares in the tradable float, 22.50 million shares are sold short by the bears. This is a large short interest on a stock with a relatively low tradable float. If the bulls get the earnings news they're looking for, then shares of Abercrombie & Fitch could easily rip sharply higher post-earnings forcing the bears to move fast to cover some of their trades.

From a technical perspective, Abercrombie & Fitch is currently trending well below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last three months, with shares moving lower from its high of over $23.72 to its new 52-week low of $15.42 a share. During that downtrend, shares of Abercrombie & Fitch have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on Abercrombie & Fitch, 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 $19.05 to $20.48 a share and then above its 50-day moving average of $20.65 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.83 million 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 $22.77 to $24, or even $26 a share.

I would avoid Abercrombie & Fitch or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its new 52-week low of $15.42 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 $13 to $12 a share.

For another take on A&F, check out "Abercrombie & Fitch: Too Soon to Go Back to School."

GameStop

Another earnings short-squeeze prospect is multichannel video game retailer GameStop  (GME - Get Report), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect GameStop to report revenue of $1.73 billion on earnings of 24 cents per share.

The current short interest as a percentage of the float for GameStop is extremely high at 41.8%. That means that out of 104.54 million shares in the tradable float, 43.74 million shares are sold short by the bear. If this company can deliver the earnings news the bulls are looking for, then shares of GameStop could easily experience a large short-squeeze that sends the bears scrambling to cover some of their positions.

From a technical perspective, GameStop is currently trending below its 50-day moving average and above its 200-day moving average, which is neutral trendwise. This stock is spiking higher on Tuesday right above some previous support levels at $42.76 to $42 a share. This move is starting to push shares of GameStop within range of triggering a major breakout trade above some key near-term overhead resistance levels post-earnings.

If you're bullish on GameStop, 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 $45.34 and then above its 52-week high of $47.83 to some past resistance at around $49 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.82 million shares. If that breakout gets started post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance level at $54.62 a share. Any high-volume move above that level will then give this stock a chance to tag or trend north of $60 a share.

I would simply avoid GameStop 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 $42 to its 200-day moving average of $39.88 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 levels at $36.84 to $34 a share, or even $31 a share.

SeaDrill

My final earnings short-squeeze trading opportunity is offshore drilling contractor SeaDrill  (SDRL - Get Report), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect SeaDrill to report revenue of $1.18 billion on earnings of 63 cents per share.

The current short interest as a percentage of the float for SeaDrill is pretty high at 9.8%. That means that out of the 455.30 million shares in the tradable float, 44.98 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11%, or by about 4.45 million shares. If bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears run to cover some of their trades.

From a technical perspective, SeaDrill 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 five months, with shares plunging sharply lower from its high of $15.44 to its new 52-week low of $6.15 a s share. During that downtrend, this stock has been consistently making lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on SeaDrill, 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 $7.69 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 11.90 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 $8.94 to its 50-day moving average of $9.15, or even $9.79 to $10.40 a share.

I would avoid SeaDrill or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below its new 52-week low of $6.15 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 $5 to $4.50 a share.

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