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.

AeroVironment

My first earnings short-squeeze trade idea is unmanned aircraft systems and efficient energy systems developer AeroVironment  (AVAV - Get Report) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect AeroVironment to report revenue of $85.29 million on a loss of 7 cents per share.

The current short interest as a percentage of the float for AeroVironment is extremely high at 19.6%. That means that out of the 22.56 million shares in the tradable float, 4.42 million shares are sold short by the bears. If the bulls get the earnings news they're looking for, then shares of AeroVironment could easily rip sharply higher post-earnings as the bears run to cover some of their positions.

From a technical perspective, AeroVironment 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 downtrending over the last month, with shares moving lower off its 52-week high of $32.44 a share to Monday's intraday low of $28.49 a share. During that downtrend, this stock has been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on AeroVironment, then I would wait until after its report and look for long-biased trades if this stock manages to break out above both its 50-day moving average of $29.27 a share and its 20-day moving average of $30.45 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 138,623 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 its 52-week high of $32.44 to $33.85, or even $36.50 to $41.67 a share.

I would simply avoid AeroVironment 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 $27.11 to its 200-day moving average of $26.08 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 $24.50 to $23.13, or even $22 to $21.85 a share.

Eros International

Another potential earnings short-squeeze play is movie production player Eros International  (EROS - Get Report) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Eros International to report revenue $54.37 million on earnings of 2 cents per share.

The current short interest as a percentage of the float for Eros International is extremely high at 28.5%. That means that out of the 20.11 million shares in the tradable float, 5.73 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.7%, or by about 310,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily jump sharply higher post-earnings as the bears scramble to cover some of their trades.

From a technical perspective, Eros International is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last six months, with shares moving higher off its low of $5.59 a share to its recent high of $15.89 a share. During that uptrend, shares of Eros International 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 in the bull camp on Eros International, then I would wait until after its report and look for long-biased trades if this stock manages to break above some near-term overhead resistance levels at $14.46 to $15 a share and then above more key resistance levels at $15.70 to $15.89 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 240,438 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 $20 to $22.50, or even $25 a share.

I would simply avoid Eros International or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back some near-term support levels at $12.95 to $12 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 $11.35 to $11, or even $10.36 to $9.50 a share.

Pier 1 Imports

Another potential earnings short-squeeze candidate is specialty retailer Pier 1 Imports  (PIR - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Pier 1 Imports to report revenue of $420.05 million on a loss of 5 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is very high at 17.5%. That means that out of the 77.90 million shares in the tradable float, 13.65 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 35.6%, or by about 3.58 million 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 positions.

From a technical perspective, Pier 1 Imports is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last three months, with shares moving lower off its high of $7.62 a share to its recent low of $4.88 a share. During that downtrend, shares of Pier 1 Imports have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're bullish on Pier 1 Imports, 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 20-day moving average of $5.56 a share and then above more key resistance levels at its 200-day moving average of $6.06 to $6.23 a share high volume. Look for volume on that move that hits near or above its three-month average action of 2 million 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 $7.14 to $7.60, or even $8 to $8.50 a share.

I would avoid Pier 1 Imports 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 $5 to $4.88 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 $4.50 to $4, or even its 52-week low of $3.76 a share.

FactSet Research Systems

Another earnings short-squeeze prospect is integrated financial information and analytical applications provider FactSet Research Systems  (FDS - Get Report) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect FactSet Research Systems to report revenue of $287.66 million on earnings of $1.61 per share.

The current short interest as a percentage of the float for FactSet Research Systems is notable at 6%. That means that out of 40.03 million shares in the tradable float, 2.41 million shares are sold short by the bear.

From a technical perspective, FactSet Research Systems 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 $162.81 a share to its intraday low on Monday of $150.38 a share. During that downtrend, shares of FactSet Research Systems have been consistently making lower highs and lower lows, which is bearish technical price action.

If you're bullish on FactSet Research Systems, 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 $154.99 a share and its 20-day moving average of $158.35 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 248,317 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 $162.81 to its 52-week high of $177.28 a share.

I would simply avoid FactSet Research Systems 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 $146.90 to $145.02 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 overhead resistance levels at $142.63 to $135.12 a share.

Worthington Industries

My final earnings short-squeeze trading opportunity is metals manufacturing player Worthington Industries  (WOR - Get Report) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Worthington Industries to report revenue of $692.48 million on earnings of 64 cents per share.

The current short interest as a percentage of the float for Worthington Industries sits at 5%. That means that out of the 43.66 million shares in the tradable float, 2.21 million shares are sold short by the bears.

From a technical perspective, Worthington Industries 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 strong over the last six months, with shares moving higher off its low of $25.23 a share to its recent high of $40.87 a share. During that uptrend, shares of Worthington Industries 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 in the bull camp on Worthington Industries then I would wait until after its report and look for long-biased trades if this stock manages to break out above both its 50-day moving average of $37.50 a share to its 20-day moving average of $38.97 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 360,592 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 $40.87 to its 52-week high of $41.07, or even $43 to $46 a share.

I would avoid Worthington Industries 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 $35 to $34 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 $31.85 to $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.