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.

Zagg

My first earnings short-squeeze trade idea is mobile accessory solutions player Zagg  (ZAGG - Get Report) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Zagg to report revenue of $82.94 million on earnings of 24 cents per share.

The current short interest as a percentage of the float for Zagg is very high at 15.8%. That means that out of the 26.59 million shares in the tradable float, 4.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 6.9%, or by about 272,000 shares. If the bears get caught pressing their bets into a strong 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, Zagg is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last month and change, with shares moving higher off its low of $8.29 a share to its recent high of $10.75 a share. During that uptrend, shares of Zagg 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 near-term breakout trade post-earnings.

If you're bullish on Zagg, 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 $10.75 to around $11 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 566,330 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 $11.76 to it 52-week high of $12.74 a share.

I would simply avoid Zagg 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 $10.12 a share and its 50-day moving average of $9.91 a share and then below more near-term support at $9.67 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 to its 200-day moving average of $8.89, or even $8.29 a share.

Epizyme

Another potential earnings short-squeeze play is clinical stage biopharmaceutical player Epizyme  (EPZM - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Epizyme to report revenue $570,000 on a loss of 6 cents per share.

The current short interest as a percentage of the float for Epizyme is rather high at 16%. That means that out of the 28.43 million shares in the tradable float, 4.56 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 24.6%, or by about 900,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their trades.

From a technical perspective, Epizyme 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 $8.27 to $8.48 a share. Following that potential bottom, shares of Epizyme have started to uptrend and move back above its 20-day moving average of $9.42 a share. That move is now starting to push this stock within range of triggering a near-term breakout trade above some key overhead resistance levels post-earnings.

If you're in the bull camp on Epizyme, 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 $10.48 to its 50-day moving average of $10.61 a share and then above more key resistance at around $11 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 652,610 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 $13 to around $15 a share.

I would simply avoid Epizyme 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 $9.42 a share and below more support around $9 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 $8.48 to its 52-week low of $8.27 a share.

FXCM

Another potential earnings short-squeeze candidate is online foreign exchange trading player FXCM  (FXCM) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect FXCM to report revenue of $72 million.

The current short interest as a percentage of the float for FXCM is very high at 14.5%. That means that out of the 5.03 million shares in the tradable float, 730,000 shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 14.4%, or by about 92,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of FXCM could easily jump sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, FXCM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong over the last month and change, with shares moving higher off its low of $9.46 a share to its recent high of $17.43 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. Shares of FXCM are now trending within range of triggering a big breakout trade post-earnings.

If you're bullish on FXCM, 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 $17.43 to $18.51 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 708,979 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 level at $24.77 a share.

I would avoid FXCM or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 50-day moving average of $12.98 a share and its 20-day moving average of $12.42 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 200-day moving average of $11.10 to $9.46 a share.

Five Prime Therapeutics

Another earnings short-squeeze prospect is clinical stage biotechnology player Five Prime Therapeutics  (FPRX - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Five Prime Therapeutics to report revenue of $354.18 million on earnings of $9.67 per share.

The current short interest as a percentage of the float for Five Prime Therapeutics is pretty high at 9.3%. That means that out of 24.10 million shares in the tradable float, 2.25 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 18.5%, or by about 351,000 shares. If the 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, Five Prime Therapeutics is currently trending above its 200-day moving average and just below its 50-day moving average, which is neutral trendwise. This stock has been uptrending over the last month, with shares moving higher off its low of $28.01 to its recent high of $36.44 a share. During that uptrend, shares of Five Prime Therapeutics 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 Five Prime Therapeutics, 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 $36.44 to $38.18 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 490,648 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 $42.50 to it 52-week high of $45.72 a share.

I would simply avoid Five Prime Therapeutics 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 $32.59 to $31.09 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 200-day moving average of $28.38 to $28.01 a share. Any high-volume move below $28.01 will then give this stock a chance to re-fill some of its previous gap-up-day zone from last October that started around $17.50 a share.

NN 

My final earnings short-squeeze play is industrial goods player NN (NNBR - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect NN to report revenue of $186.26 million on earnings of 25 cents per share.

The current short interest as a percentage of the float for NN is pretty high at 10.9%. That means that out of the 25.23 million shares in the tradable float, 2.76 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of NN Inc. could easily spike sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, NN 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 month, with shares moving higher off its low of $10.28 to its recent high of $14.46 a share. During that uptrend, shares of NN 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 NN. 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 $14.46 to around $15 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 258,100 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 $16.14 to $17, or even $18 to its 200-day moving average of $18.85 a share.

I would avoid NN 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 $ 12.63 a share to its 20-day moving average of $12.20 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 $11.05 to its new 52-week low of $10.28 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.