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.

Shake Shack

My first earnings short-squeeze trade idea is specialty eateries operator Shake Shack  (SHAK - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Shake Shack to report revenue of $50.44 million on earnings of 7 cents per share.

The current short interest as a percentage of the float for Shake Shack is extremely high at 67%. That means that out of the 7.20 million shares in the tradable float, 3.97 million shares are sold short by the bears. This is currently a low float and high short-interest situation stock. Any bullish earnings news could easily set off a monster short-squeeze that forces the bears to start covering some of their short positions.

From a technical perspective, Shake Shack 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 of $30 a share to its recent high of $43.99 a share. During that uptrend, shares of Shake Shack 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 Shake Shack, 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 $43.99 to $47 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 660,449 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 its 200-day moving average of $49.85 to $53.50 a share.

I would simply avoid Shake Shack 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 $38.28 a share to more support at $37.82 a share and then below its 50-day moving average of $36.93 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 $34 to $31.60, or even its 52-week low of $30 a share.

LGI Homes

Another potential earnings short-squeeze play is real estate development player LGI Homes  (LGIH - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect LGI Homes to report revenue $178.03 million on earnings of 71 cents per share.

The current short interest as a percentage of the float for LGI Homes is very high at 22.9%. That means that out of the 14.82 million shares in the tradable float, 3.40 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of LGI Homes could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, LGI Homes 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 $18.74 to $19 a share. Following that potential bottom, shares of LGI Homes have started to uptrend, with shares moving higher from $19 a share to its recent high of $24.61 a share. That uptrend has now pushed this stock within range of triggering a big breakout trade post-earnings above some near-term overhead resistance levels.

If you're in the bull camp on LGI Homes, 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 200-day moving average of $24.32 to $24.61 a share and then above more resistance levels at $25 to $26.35 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 514,084 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 around $30 to $33 a share.

I would simply avoid LGI Homes 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 $22 to $21.53 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 $19 to $18.74 a share.

Square

Another potential earnings short-squeeze candidate is point-of-sale software provider Square  (SQ - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Square to report revenue of $343.22 million on a loss of 13 cents per share.

The current short interest as a percentage of the float for Square is extremely high at 69.4%. That means that out of the 14.21 million shares in the tradable float, 9.86 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 19.2%, or by 1.59 million shares. If bears get caught pressing their bets into a bullish quarter, then shares of Square could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Square is currently trending above both its 20-day moving average and its 50-day moving average, which is bullish. This stock has been uptrending strong over the last month and change, with shares moving higher off its all-time low of $8.06 a share to its recent high of $12.65 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. Shares of Square are now quickly moving within range of triggering a big breakout trade post-earnings.

If you're bullish on Square, 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 $12.65 to $13.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.56 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 $14.50 to its all-time high at around $15 a share.

I would avoid Square 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 $11.50 to $11 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 its 50-day moving average of $10.45 to its 20-day moving average of $10.19 a share, or even some more near-term support at $9.32 a share.

Freshpet

Another earnings short-squeeze prospect is Freshpet  (FRPT - Get Report) , which makes natural fresh foods, refrigerated meals and treats for dogs and cats.  Freshpet is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect it to report revenue of 30.11 million on a loss of 2 cents per share.

The current short interest as a percentage of the float for Freshpet is very high at 36%. That means that out of 21.41 million shares in the tradable float, 7.72 million shares are sold short by the bear. This is another high short-interest low float situation stock. Any bullish earnings news could easily set off a large short-squeeze for shares of Freshpet post-earnings that forces the bears to dump some of their short positions.

From a technical perspective, Freshpet 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 month and change, with shares moving higher off its new 52-week low of $5.60 a share to its recent high of $7.77 a share During that uptrend, shares of Freshpet 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 Freshpet, 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 $7.77 to $8.25 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 365,293 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 $9.10 to $10, or even $11.17 to its 200-day moving average of $11.63 a share.

I would simply avoid Freshpet 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 $6.73 a share and then below more key support levels at $6.49 to $6.33 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 $5.60 a share.

Papa Murphy's

My final earnings short-squeeze trading opportunity is specialty eateries player Papa Murphy's  (FRSH) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Papa Murphy's to report revenue of $33.23 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Papa Murphy's is extremely high at 24.8%. That means that out of the 11.66 million shares in the tradable float, 2.89 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Papa Murphy's could easily rip sharply higher post-earnings as the bears run to cover some of their trades.

From a technical perspective, Papa Murphy's 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 of $8.45 to its intraday high on Monday of $11.40 a share. During that uptrend, shares of Papa Murphy's 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 Papa Murphy's, 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 $11.55 to $12.23 a share and then above more resistance levels at $12.62 to $12.79 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 173,802 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 $13.18 to $14.31, or even its 200-day moving average of $14.47 to $15.19 a share.

I would avoid Papa Murphy's or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below both its 50-day moving average of $10.21 a share to its 20-day moving average of $9.82 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 $9.44 to its new 52-week low of $8.45 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.