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.

Duluth Holdings

My first earnings short-squeeze trade idea is apparel and accessories player Duluth Holdings (DLTH - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Duluth Holdings to report revenue of $69.16 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for Duluth Holdings is extremely high at 38.9%. That means that out of the 9.44 million shares in the tradable float, 3.67 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 31.2%, or by about 874,000 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 rush to cover some of their positions.

From a technical perspective, Duluth Holdings 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 the low of $26.01 a share to the recent high of $38.19 a share. During that uptrend, shares of Duluth Holdings 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 above some key overhead resistance levels.

If you're bullish on Duluth Holdings, 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 to $36 a share and then above its all-time high of $38.19 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 231,734 shares. If that breakout triggers post-earnings, then this stock will set up to enter new all-time-high territory. Some possible upside targets off that breakout are $45 to $50, or even $55 a share.

I would simply avoid Duluth Holdings 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 $32.52 a share and then below more near-term support at $32 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at its 50-day moving average of $29.19 a share to $28, or even $27 to $26 a share.

Destination Maternity

Another potential earnings short-squeeze play is maternity apparel designer and retailer Destination Maternity (DEST - Get Report) , which is set to release numbers on Thursday after the market close. There are currently no analysts' estimates available for this company.

The current short interest as a percentage of the float for Destination Maternity is pretty high at 12.3%. That means that out of the 10.8 million shares in the tradable float, 1.33 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.6%, or by about 149,000 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 move fast to cover some of their trades.

From a technical perspective, Destination Maternity 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 and change, with shares sliding lower off the high of $8.42 a share to the recent low of $6.66 a share. During that downtrend, shares of Destination Maternity have been making mostly lower highs and lower lows, which is bearish technical price action.

If you're in the bull camp on Destination Maternity, 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 $7.17 a share and its 20-day moving average of $7.39 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 80,159 shares. If that breakout fires off post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $8.15 to $8.42, or even $8.75 to $9 a share.

I would simply avoid Destination Maternity 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 $6.66 to $6.28 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at $5.40 to around $5 a share.

Casey's General Stores

Another potential earnings short-squeeze candidate is convenience store operator Casey's General Stores (CASY - Get Report) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Casey's General Stores to report revenue of $1.94 billion on earnings of $1.59 per share.

The current short interest as a percentage of the float for Casey's General Stores is notable at 6.5%. That means that out of the 38.75 million shares in the tradable float, 2.53 million shares are sold short by the bears.

From a technical perspective, Casey's General Stores 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 the low of $110.45 a share to its recent high of $124.81 a share. During that uptrend, shares of Casey's General Stores 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 above some key overhead resistance levels.

If you're bullish on Casey's General Stores, 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 $123.19 to $124.81 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 532,938 shares. If that breakout takes hold post-earnings, then this stock will set up to refill some of its previous gap-down-day zone from September that started near $134 a share.

I would avoid Casey's General Stores or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below its 200-day moving average of $119.06 a share to its 50-day moving average of $117.55 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at $115 to $112, or even $110.45 to its 52-week low of $98.80 a share.

Restoration Hardware

Another earnings short-squeeze prospect is home furnishing stores operator Restoration Hardware (RH - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Restoration Hardware to report revenue of $527.13 million on earnings of 16 cents per share.

The current short interest as a percentage of the float for Restoration Hardware is extremely high at 37.7%. That means that out of 38.28 million shares in the tradable float, 14.45 million shares are sold short by the bears.

From a technical perspective, Restoration Hardware 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 $27.50 a share to its recent high of $37.79 a share. During that uptrend, shares of Restoration Hardware have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now pushed this stock within range of triggering a big breakout trade post-earnings above some key resistance levels.

If you're bullish on Restoration Hardware, 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 $37.79 to $39.98 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.97 million shares. If that breakout develops post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $45 to $47, or even $50 to $52 a share.

I would simply avoid Restoration Hardware 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 $34.54 a share to its 200-day moving average of $34.18 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 its 50-day moving average of $32.37 a share to $30, or even $28 to $27.50 a share.

AeroVironment

My final earnings short-squeeze trading opportunity is industrial goods player 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 $52.20 million on a loss of 1 cent per share.

The current short interest as a percentage of the float for AeroVironment is rather high at 9.7%. That means that out of the 20.22 million shares in the tradable float, 1.97 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.1%, or by about 213,000 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 scramble to cover some of their positions.

From a technical perspective, AeroVironment is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last two months and change, with shares moving higher off the low of $22.16 a share to the intraday high on Tuesday of $28.99 a share. During that uptrend, shares of AeroVironment have been making mostly higher lows and higher highs, which is bullish technical price action. That trend has now pushed the stock within range of triggering a big breakout trade post-earnings above some key resistance levels.

If you're in the bull camp on AeroVironment, 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 $29.50 to $30.08 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 148,105 shares. If that breakout materializes post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at its 52-week high of $32.44 a share to $33.85, or even $35 to $36 a share.

I would avoid AeroVironment and 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 $27.80 a share to its 200-day moving average of $27.18 a share, and then below more key support at $27 a share with high volume. If we get that move, then this stock will set up to retest or possibly take out its next major support levels at its 50-day moving average of $25.24 a share to $24, or even $23.40 to $22.16 a share.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.