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.

Ambarella

AMBA Chart AMBA data by YCharts

My first earnings short-squeeze trade idea is semiconductor player Ambarella  (AMBA - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Ambarella to report revenue of $89.90 million on earnings of 86 cents per share.

The current short interest as a percentage of the float for Ambarella is extremely high at 45.7%. That means that out of the 28.75 million shares in the tradable float, 13.15 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.2%, or by about 770,000 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 move fast to cover some of their positions.

From a technical perspective, Ambarella is currently trending above its 50-day moving average and well below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last few weeks, with shares moving sharply higher from its low of $49.45 to its intraday high on Monday of $64.27 a share. During that uptrend, shares of Ambarella 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 Ambarella, 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 $66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.78 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 $70 to $75 a share.

I would simply avoid Ambarella or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some near-term support at $60 a share and then below both its 50-day moving average of $56.55 to its 20-day moving average of $55.39 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 $50 to $48.76, or even its 52-week low of $44.45 a share.

Titan Machinery

TITN Chart TITN data by YCharts

Another potential earnings short-squeeze trading opportunity is full service agricultural and construction equipment stores operator Titan Machinery  (TITN - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Titan Machinery to report revenue $412.49 million on earnings of 21 cents per share.

The current short interest as a percentage of the float for Titan Machinery is extremely high at 30%. That means that out of the 16.97 million shares in the tradable float, 3.05 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Titan Machinery could rip higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Titan Machinery is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last two months, with shares moving between $11.15 on the downside and $13.44 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 Titan Machinery.

If you're in the bull camp on Titan Machinery, 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 $13.29 to $13.44 a share and then above its 200-day moving average of $13.55 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 174,514 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 $14.42 to $14.68, or even $16 to its 52-week high of $16.99 a share.

I would simply avoid Titan Machinery 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 $12 to $11.15 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 level at its 52-week low of $10.01 a share.

Hovnanian Enterprises

HOV Chart HOV data by YCharts

Another potential earnings short-squeeze candidate is homebuilding player Hovnanian Enterprises  (HOV - Get Report) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Hovnanian Enterprises to report revenue of $739.45 million on earnings of 9 cents per share.

The current short interest as a percentage of the float for Hovnanian Enterprises is very high at 17.8%. That means that out of the 123.25 million shares in the tradable float, 22.05 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.6%, or by about 962,000 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 scramble to cover some of their positions.

From a technical perspective, Hovnanian Enterprises is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $1.59 to $1.60 a share. Following that bottom, this stock has now started to spike higher back above its 20-day moving average and it's beginning to move within range of triggering a big breakout trade post-earnings.

If you're bullish on Hovnanian Enterprises, 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 resistance at $1.91 a share and then above its 50-day moving average of $1.96 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.25 million 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 $2.26 to $2.35, or even $2.42 to its 200-day moving average of $2.59 a share.

I would avoid Hovnanian Enterprises 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 $1.60 to $1.59 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 $1.45 to its 52-week low of $1.37 a share.

Ascena Retail Group

ASNA Chart ASNA data by YCharts

Another earnings short-squeeze prospect is apparel stores player Ascena Retail Group  (ASNA - Get Report) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Ascena Retail Group to report revenue of $1.78 billion on earnings of 29 cents per share.

The current short interest as a percentage of the float for Ascena Retail Group is very high at 23.1%. That means that out of 127.84 million shares in the tradable float, 29.61 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 7.3%, or by about 2 million shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily soar sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, Ascena Retail Group 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 low of $10 a share to its recent high of $11.91 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. Shares of Ascena Retail Group are now trending within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Ascena Retail Group, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $11.81 a share to some more near-term resistance at $11.91 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 4.45 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 its 50-day moving average of $12.75 to $13, or even its 200-day moving average of $13.74 a share.

I would simply avoid Ascena Retail Group 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 $10.50 to its 52-week low of $10 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory below $10 a share, which is bearish technical price action.

Sears Holdings

SHLD Chart SHLD data by YCharts

My final earnings short-squeeze trading opportunity is department stores operator Sears Holdings  (SHLD) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Sears Holdings to report revenue of $5.51 billion on a loss of $2.84 per share.

The current short interest as a percentage of the float for Sears Holdings is very high at 17.3%. That means that out of the 50.34 million shares in the tradable float, 12.61 million shares are sold short by the bears. This stock sports a relatively low float and a high short interest. If this company can deliver the earnings news the bulls are looking for, then a large short-squeeze could develop post-earnings that sends the bears running to cover some of their trades.

From a technical perspective, Sears Holdings 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 off its low $19.82 to its recent high of $22.76 a share. During that uptrend, shares of Sears Holdings has 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 big breakout trade post-earnings.

If you're in the bull camp on Sears Holdings, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 20-day moving average of $22.71 to $22.76 a share and then above its 50-day moving average of $23.72 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 593,036 shares. If that breakout gets going post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $25.24 to $26.38, or even $27 to $28.31 a share.

I would avoid Sears Holdings 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 $20 to $19.82 a share and then below its 52-week low of $19.08 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory below $19.08, which is bearish technical price action.

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