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.

Applied DNA Sciences

My first earnings short-squeeze trade idea is DNA-based technologies player Applied DNA Sciences  (APDN - Get Report) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Applied DNA Sciences to report revenue of $2.09 million on a loss of 9 cents per share.

The current short interest as a percentage of the float for Applied DNA Sciences is pretty high at 7.2%. That means that out of the 18.73 million shares in the tradable float, 1.35 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.2%, or by about 53,000 shares. If the bears get caught pressing their bets into strong quarter, then this stock could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, Applied DNA Sciences 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 shears moving higher from its low of $2.82 to its intraday high on Monday of $3.87 a share. During that uptrend, shares of Applied DNA Sciences have 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 near-term breakout trade post-earnings.

If you're bullish on Applied DNA Sciences, 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 at $4 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 802,244 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 $4.64 to $4.88, or even its 50-day moving average of $4.98 to around $6 a share.

I would simply avoid Applied DNA Sciences 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 $3 to $2.72 a share with high volume. If we get that move, then this stock will set up to re-test or take out its next major support levels at $2.50 to $2.27, or even $2.02 a share.

Joy Global

Another potential earnings short-squeeze trading opportunity is mining equipment player Joy Global  (JOY) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Joy Global to report revenue $791.14 million on earnings of 42 cents per share.

The current short interest as a percentage of the float for Joy Global is very high at 20.9%. That means that out of the 97.78 million shares in the tradable float, 20.29 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.5%, or by about 885,000 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, Joy Global 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 six months, with shares moving sharply lower from over $35 a share to its recent low of $11.25 a share. During that downtrend, shares of Joy Global have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on Joy Global, 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 at $12.56 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 4.92 million shares. If that breakout begins post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at its 20-day moving average of $13.91 to $14.07, or even its 50-day moving average of $15.72 a share.

I would simply avoid Joy Global 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 $11.25 a share (or below Tuesday's intraday low if lower) 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.

Arrowhead Research

Another potential earnings short-squeeze candidate is biotechnology player Arrowhead Research  (ARWR - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Arrowhead Research to report revenue of $150,000 on a loss of 39 cents per share.

The current short interest as a percentage of the float for Arrowhead Research is pretty high at 23.5%. That means that out of the 58.91 million shares in the tradable float, 13.85 million shares are sold short by the bears.

From a technical perspective, Arrowhead Research is currently trending just above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last few months, with shares moving higher from its low of $4.83 to its recent high of $6.45 a share. During that uptrend, shares of Arrowhead Research have 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 bullish on Arrowhead Research, 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 its 20-day moving average of $5.81 a share and then above more key resistance levels at its 200-day moving average of $6.40 to $6.45 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.79 million 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 $7.50 to $8, or even its 52-week high of $9.36 a share.

I would avoid Arrowhead Research 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 $5.42 to $5.28 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 $4.83 to its 52-week low of $4.35 a share.

Pier 1 Imports

Another earnings short-squeeze prospect is decorative home furnishings retailer Pier 1 Imports  (PIR - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pier 1 Imports to report revenue of $492.82 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is pretty high at 16.5%. That means that out of 81.99 million shares in the tradable float, 13.53 million shares are sold short by the bear. If this company can deliver the earnings news the bulls are looking for, then shares of Pier 1 Imports could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Pier 1 Imports 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 two months, with shares moving lower off its high of $8.23 to its intraday low on Monday of $5.71 a share. During that downtrend, shares of Pier 1 Imports have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on Pier 1 Imports, 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 its 20-day moving average of $6.41 a share to more resistance at $6.50 a share high volume. Look for volume on that move that hits near or above its three-month average volume of 2.91 million 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 $7 to its 50-day moving average of $7.03, or even $7.50 to $8 a share.

I would simply avoid Pier 1 Imports 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 $5.71 (or below Wednesday's intraday low if lower) 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.

Apogee Enterprises

My final earnings short-squeeze play is general building materials player Apogee Enterprises  (APOG - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Apogee Enterprises to report revenue of $265.74 million on earnings of 65 cents per share.

The current short interest as a percentage of the float for Apogee Enterprises stands at 6.9%. That means that out of the 28.30 million shares in the tradable float, 1.96 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11.2%, or by about 197,000 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 scramble to cover some of their positions.

From a technical perspective, Apogee Enterprises is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last few weeks, with shares falling sharply off its high of $54.34 to its intraday low on Monday of $42.55 a 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 Apogee 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 overhead resistance levels at $44 to $46.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 292,872 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 its 20-day moving average of $49.03 to its 50-day moving average of $49.38, or even its 200-day moving average of $50.99 to $52 a share.

I would avoid Apogee Enterprises or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key support levels at $42 to $41.13 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 $37.50 to $36, or even $32.50 a share.

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