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.

HCI Group

My first earnings short-squeeze trading opportunity is property and casualty insurance products provider HCI Group  (HCI) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect HCI Group to report revenue of $68.06 million on earnings of $1.21 per share.

The current short interest as a percentage of the float for HCI Group is extremely high at 20.5%. That means that out of the 8.90 million shares in the tradable float, 1.82 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 0.6%, or by about 11,000 shares. If the bears get caught pressing their bets into a 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, HCI Group is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last month and change, with shares moving higher off its low o $29.04 a share to its recent high of $35.68 a share. During that uptrend, shares of HCI Group 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 HCI 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 $35.68 to $36.11 a share and then above more resistance at $37 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 128,041 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 200-day moving average of $38.64 to $39.60, or even $41 to $42 a share.

I would simply avoid HCI Group or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 20-day moving average of $33.48 a share and its 50-day moving average of $32.79 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 $31.22 to its 52-week low of $29.04 a share.

CDI

Another potential earnings short-squeeze trade is staffing and outsourcing player CDI (CDI) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect CDI Corp. to report revenue $234.70 million on a loss of 18 cents per share.

The current short interest as a percentage of the float for CDI Corp. is notable at 3.9%. That means that out of the 14.61 million shares in the tradable float, 579,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.2%, or by about 12,000 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 trades.

From a technical perspective, CDI Corp. 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 $4.31 to $4.51 a share. Following that potential bottom, shares of CDI Corp. have started to uptrend and move back above its 20-day moving average of $4.73 a share. This stock is now quickly trending within range of triggering a big breakout trade above some near-term overhead resistance levels post-earnings.

If you're in the bull camp on CDI Corp., 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 $5.19 to its 50-day moving average of $5.34 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 128,028 shares. If that breakout takes hold post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $6 to $6.50, or even $7 to $7.25 a share.

I would simply avoid CDI Corp. or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $4.73 a share and then below more key support levels at $4.51 to $4.31 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory below $4.31 a share, which is bearish technical price action.

Stratasys

Another potential earnings short-squeeze candidate is 3D printing player Stratasys  (SSYS) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Stratasys to report revenue of $168.45 million on a loss of 11cents per share.

The current short interest as a percentage of the float for Stratasys is very high at 19.7%. That means that out of the 50.48 million shares in the tradable float, 9.96 million shares are sold short by the bears.

From a technical perspective, Stratasys 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 strong over the last few weeks, with shares moving higher off its new 52-week low of $14.48 a share to its intraday high on Tuesday of $20.56 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. Shares of Stratasys are now quickly moving within range of triggering a big breakout trade post-earnings.

If you're bullish on Stratasys, 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 to $23 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.08 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 $25 to its 200-day moving average of $27.75, or even $30 a share.

I would avoid Stratasys or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 20-day moving average of $17.21 a share and then below more key support at $16.92 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 new 52-week low of $14.48 a share.

Nimble Storage

Another earnings short-squeeze prospect is flash-optimized storage platforms provider Nimble Storage  (NMBL) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Nimble Storage to report revenue of $88.21 million on a loss of 12 cents per share.

The current short interest as a percentage of the float for Nimble Storage is pretty high at 10.7%. That means that out of 45.85 million shares in the tradable float, 4.94 million shares are sold short by the bear. If this company can produce the earnings news the bulls are looking for, then shares of Nimble Storage could easily explode sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Nimble Storage 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 strong over the last few weeks, with shares moving higher off its new 52-week low of $5.64 a share to its recent high of $7.85 a share During that uptrend, shares of Nimble Storage 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 Nimble Storage, 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 $7.85 to $8 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.41 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 $9 to $9.50, or even $10 a share.

I would simply avoid Nimble Storage 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 its 20-day moving average of $6.65 a share to more support at $6.49 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 $6 to its new 52-week low of $5.64 a share.

Big Lots

My final earnings short-squeeze trade idea is discount retailer Big Lots  (BIG) , which is set to release numbers on Friday before the market open. Wall Street analysts, on average, expect Big Lots to report revenue of $1.60 billion on earnings of $1.98 per share.

The current short interest as a percentage of the float for Big Lots is very high at 16.6%. That means that out of the 49.03 million shares in the tradable float, 8.14 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Big Lots could easily surge sharply higher post-earnings as the bears run to cover some of their trades.

From a technical perspective, Big Lots is currently trending 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 weeks, with shares moving higher off its low of $35.86 to its intraday high on Tuesday of $41 a share. During that uptrend, shares of Big Lots 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 in the bull camp 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 key near-term overhead resistance levels at around $42 a share to its 200-day moving average of $43.10 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 921,733 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 $45 to $47, or even $48 to $50 a share.

I would avoid Big Lots or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 20-day moving average of $38.25 a share to its 50-day moving average of $37.99 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 $35.86 to its new 52-week low of $33.78 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.

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