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-time.

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.

Palo Alto Networks

My first earnings short-squeeze play is enterprise security platform provider Palo Alto Networks  (PANW - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Palo Alto Networks to report revenue $339.48 million on earnings of 42 cents per share.

The current short interest as a percentage of the float for Palo Alto Networks is notable at 8.4%. That means that out of the 85.06 million shares in the tradable float, 7.19 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.8%, or by about 395,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily jump sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, Palo Alto Networks 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 $128.51 share to its intraday high on Tuesday of $146.34 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of Palo Alto Networks within range of triggering a big breakout trade post-earnings.

If you're bullish on Palo Alto Networks, 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 50-day moving average of $147.30 a share to around $150 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.85 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 $157.27 to its 200-day moving average of $159.63, or even $165.29 to $170 a share.

I would simply avoid Palo Alto Networks 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 $141.56 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 $135 to $128.51, or even $122.70 a share.

Copart

Another potential earnings short-squeeze trade idea is online auctions and vehicle remarketing services provider Copart  (CPRT - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Copart to report revenue $321.16 million on earnings of 54 cents per share.

The current short interest as a percentage of the float for Copart stands at 5.6%. That means that out of the 99.66 million shares in the tradable float, 5.60 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.6%, or by about 142,000 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, Copart 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 five months, with shares moving sharply higher off its low of $32.26 a share to its recent high of $43.98 a share. During that uptrend, shares of Copart have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on Copart, then I would wait until after its report and look for long-biased trades if this stock manages to break above its new 52-week high of $43.98 a share (or above Wednesday's intraday high if greater) with high volume. Look for volume on that move that hits near or above its three-month average volume of 657,905 shares. If that breakout fires off post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $50 to $55, or even $60 a share.

I would simply avoid Copart 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 $43.09 to $42.36 a share and then below its 50-day moving average of $42.07 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 $40 to its 200-day moving average of $37.61 a share.

Sanderson Farms

Another potential earnings short-squeeze candidate is integrated poultry processing player Sanderson Farms  (SAFM - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Sanderson Farms to report revenue of $671.61 million on earnings of $1.62 per share.

The current short interest as a percentage of the float for Sanderson Farms is extremely high at 22.9%. That means that out of the 19.77 million shares in the tradable float, 4.53 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of Sanderson Farms could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Sanderson Farms is currently trending above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has recently formed a double bottom chart pattern, after shares found some buying interest over the last month or so at $84.75 to $85.90 a share. Following that potential bottom, this stock has now started to spike higher and move within range of triggering a big breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on Sanderson Farms, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $90.03 a share and then above its 20-day moving average of $90.88 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 419,705 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 $93 to its 52-week high of $95.98 a share. Any high-volume move above those levels will then give this stock a chance to make a run at tagging or taking out $100 a share.

I would avoid Sanderson Farms 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 $87 to $85.90 a share and then below more key support at $84.75 to $83.49 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 $80 to its 200-day moving average of $78.36, or even $75 a share.

Tech Data

Another earnings short-squeeze prospect is technology products player Tech Data  (TECD - Get Report) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Tech Data to report revenue of $6 billion on earnings of 94 cents per share.

The current short interest as a percentage of the float for Tech Data stands at 7.5%. That means that out of 34.34 million shares in the tradable float, 2.58 million shares are sold short by the bear.

From a technical perspective, Tech Data 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 shares moving higher off its low of $61.99 a share to its intraday high on Tuesday of $68.56 a share. During that uptrend, shares of Tech Data 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 Tech Data, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 200-day moving average of $68.84 a share and then above its 50-day moving average of $71.12 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 349,162 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 $74 to $78.50, or even its 52-week high of $79.25 a share.

I would simply avoid Tech Data 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 $65.93 a share to $63.18 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 $61.99 to $60, or even $58 a share.

GameStop

My final earnings short-squeeze trading opportunity is video game retailer GameStop  (GME - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect GameStop to report revenue of $1.97 billion on earnings of 61 cents per share.

The current short interest as a percentage of the float for GameStop is very high at 37.2%. That means that out of the 102.49 million shares in the tradable float, 38.16 million shares are sold short by the bears.

From a technical perspective, GameStop is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last month and change, with shares moving lower off its high of $33.72 a share to its recent low of $27.52 a share. During that downtrend, shares of GameStop have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on GameStop 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 $29 to $30 a share and then above both its 20-day moving average of $30.05 a share to its 50-day moving average of $30.75 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.87 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 $32.50 to $33.72, or even its 200-day moving average of $34.47 to $37 a share.

I would avoid GameStop 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 $27.52 to $25.84 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 $24.47 to $24.05, or even $22 to $20 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.