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.

Short-squeeze candidates are something that I tweet about on a regular basis. These are also the exact type of stocks that I love to trade and alert to my subscribers in real-tie.

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.

World Wrestling Entertainment

My first earnings short-squeeze play is entertainment player World Wrestling Entertainment  (WWE - Get Report) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect World Wrestling Entertainment to report revenue $170.63 million on earnings of 10 cents per share.

The current short interest as a percentage of the float for World Wrestling Entertainment is very high at 27.9%. That means that out of the 32.09 million shares in the tradable float, 8.95 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.1%, or by about 671,000 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, World Wrestling Entertainment 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 month, with shares moving higher off its low of $15.55 a share to its recent high of $17.88 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of the World Wrestling Entertainment within range of triggering a near-term breakout trade post-earnings.

If you're bullish on World Wrestling Entertainment, 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 $17.25 to its 200-day moving average of $17.62 a share and then above more resistance at $17.80 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 584,484 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 $19 to $19.13, or even $21.02 to $23.15 a share.

I would simply avoid World Wrestling Entertainment 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 its 20-day moving average of $16.72 a share to more support at $16.55 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 $15.55 to $14.10 a share.

Stamps.com

Another potential earnings short-squeeze trade idea is Internet-based postage solutions player Stamps.com  (STMP - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Stamps.com to report revenue $68.73 million on earnings of $1.06 per share.

The current short interest as a percentage of the float for Stamps.com is very high at 17%. That means that out of the 15.12 million shares in the tradable float, 2.57 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 38.8%, or by about 719,000 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, Stamps.com is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock recently gapped-down sharply lower from around $95 a share to its low of $79.22 a share with monster downside volume. Following that move, shares of Stamps.com have started to rebound off that $79.22 low, and it's now beginning to move within range of triggering a major breakout trade post-earnings.

If you're in the bull camp on Stamps.com, then I would wait until after its report and look for long-biased trades if this stock manages to break above some near-term resistance levels at $87.90 a share and then above both its 20-day moving average of $90 a share to its 200-day moving average of $91.80 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 668,300 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 $95 to $97, or even $101.19 to its 50-day moving average of $102.19 a share.

I would simply avoid Stamps.com 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 $80.59 to $79.22 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 $70.40 to $65.36, or even $60 a share.

Encore Capital Group

Another potential earnings short-squeeze candidate is specialty finance player Encore Capital Group  (ECPG - Get Report) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Encore Capital Group to report revenue of $303.78 million on earnings of $1.27 per share.

The current short interest as a percentage of the float for Encore Capital Group is extremely high at 32.7%. That means that out of the 21.78 million shares in the tradable float, 7.12 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Encore Capital Group could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Encore Capital 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 over the last two months, with shares moving higher off its low of $23.43 a share to its recent high of $29.01 a share. During that uptrend, this stock has been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Encore Capital Group within range of triggering a breakout trade post-earnings.

If you're bullish on Encore Capital 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 $27.13 a share and then above more key resistance levels at $28 to $29.01 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 310,336 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 its 200-day moving average of $31.28 to $31.41, or even $34 to $36 a share.

I would avoid Encore Capital Group 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 $26.12 a share to some more key support levels at $25.94 to $23.43 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 $20 to $18.70, or even $17.94 a share.

Interval Leisure Group

Another earnings short-squeeze prospect is non-traditional lodging player Interval Leisure Group  (IILG) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Interval Leisure Group to report revenue of $190.59 million on earnings of 40 cents per share.

The current short interest as a percentage of the float for Interval Leisure Group is extremely high at 30.2%. That means that out of 47.46 million shares in the tradable float, 14.35 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 14.7%, or by about 2.36 million 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 positions.

From a technical perspective, Interval Leisure Group is currently trending below its 200-day moving average and above its 50-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last three months, with shares moving higher off its low of $10.51 a share to its recent high of $14.90 a share. During that uptrend, shares of Interval Leisure Group 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 Interval Leisure 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 $14.90 at $15 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.57 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 its 200-day moving average of $15.91 to $16.30, or even $19 to $20 a share.

I would simply avoid Interval Leisure 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 its 20-day moving average of $13.97 a share to its 50-day moving average of $13.79 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 $13.27 to $13.01, or even $12.13 to $11.50 a share.

Shake Shack

My final earnings short-squeeze trading opportunity is specialty eateries player Shake Shack  (SHAK - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Shake Shack to report revenue of $52.06 million on earnings of 5 cents per share.

The current short interest as a percentage of the float for Shake Shack is very high at 28%. That means that out of the 14.75 million shares in the tradable float, 4.14 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 8.6%, or by about 328,000 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, Shake Shack 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 moving lower off its high of $38.49 a share to its recent low of $33.75 a share. During that downtrend, shares of Shake Shack have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp 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 $35 a share to its 50-day moving average of $36.51 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 807,127 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 $38 to $38.50, or even $39 to $43 a share.

I would avoid Shake Shack 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 $33 to $32.25 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 $31.60 to its all-time low of $30 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.