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.

Sanderson Farms

My first earnings short-squeeze trade idea 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 $791.11 million on earnings of $2.66 per share.

The current short interest as a percentage of the float for Sanderson Farms is extremely high at 37.4%. That means that out of the 19.69 million shares in the tradable float, 7.37 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 16.5%, or by about 1.04 million 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, Sanderson Farms 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, with shares moving higher off its low of $74.07 a share to its recent high of $93.74 a share. During that uptrend, shares of Sanderson Farms 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 above some key 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 some near-term overhead resistance levels at $91 to $93.74 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 609,795 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 $97 to $98.12, or its 52-week high of $99.40 a share. Any high-volume move above $99.40 will then give this stock a chance to trend north of $100 a share.

I would simply avoid Sanderson Farms or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below both its 200-day moving average of $88.22 a share to its 50-day moving average of $87.26 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 20-day moving average of $83.57 a share to $82, or even $80 to $78 a share.

Jabil Circuit

Another potential earnings short-squeeze play is electronic manufacturing services and solutions provider Jabil Circuit (JBL - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Jabil Circuit to report revenue of $4.91 billion on earnings of 64 cents per share.

The current short interest as a percentage of the float for Jabil Circuit stands at 5.5%. That means that out of the 166.39 million shares in the tradable float, 9.29 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 34.4%, or by about 2.37 million 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, Jabil Circuit is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last two months and change, with shares moving between $20.30 on the downside and $22.08 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Jabil Circuit.

If you're in the bull camp on Jabil Circuit, 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 $21.87 to $22.08 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.20 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 $23.76 to its 52-week high of $24.50 a share. Any high-volume move above $24.50 will then give this stock a chance to trend towards $25.50 to $27 a share.

I would simply avoid Jabil Circuit 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 $21.31 a share to its 20-day moving average of $21.15 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 $20.30 to its 200-day moving average of $19.96 a share, or even $18 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 $466.42 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is pretty high at 13.9%. That means that out of the 64.41 million shares in the tradable float, 8.96 million shares are sold short by the bears.

From a technical perspective, Pier 1 Imports 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 three months and change, with shares soaring higher off its low of $3.67 a share to its recent high of $6.95 a share. During that uptrend, shares of Pier 1 Imports have been making mostly higher lows and higher highs, which is bullish 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 key overhead resistance levels at $6.95 to $7.39 a share and then above its 52-week high of $7.70 to $7.77 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 2.39 million shares. If that breakout materializes post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action.

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 its 20-day moving average of $6.11 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 $5.30 a share to its 50-day moving average of $5.14 a share, or even $4.80 to $4.60 a share.

Nordson

Another earnings short-squeeze prospect is industrial goods player Nordson (NDSN - Get Report) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Nordson to report revenue of $482.09 million on earnings of $1.24 per share.

The current short interest as a percentage of the float for Nordson is notable at 3.9%. That means that out of 50.17 million shares in the tradable float, 1.96 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 6.4%, or by about 118,000 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 positions.

From a technical perspective, Nordson is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double top chart pattern, after shares ran into some stiff resistance at $110.65 to $110.43 over the last month or so. Following that selling pressure, shares of Nordson have now slipped back below its 20-day moving average of $107.77 a share and its now trading within range of its 50-day moving average of $102.75 a share.

If you're bullish on Nordson, 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 $110.43 to its 52-week high of $110.65 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 228,931 shares. If that breakout kicks 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 move are $115 to $120, or even $125 to $130 a share.

I would simply avoid Nordson 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 $102.75 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 $96 to $95.35, or even $92 to its 200-day moving average of $89.37 a share.

Oracle

My final earnings short-squeeze trading opportunity is application software player Oracle (ORCL - Get Report) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Oracle to report revenue of $9.14 billion on earnings of 60 cents per share.

The current short interest as a percentage of the float for Oracle sits at 1.2%. That means that out of the 2.98 billion shares in the tradable float, 38.05 million shares are sold short by the bears.

From a technical perspective, Oracle is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending over the last few weeks, with shares moving higher off its low of $37.64 a share to its intraday high on Tuesday of $41 a share. During that uptrend, shares of Oracle have been consistently making 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 Oracle 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 $41.50 to its 52-week high of $42 a share high volume. Look for volume on that move that hits near or above its three-month average action of 12.62 million shares. If that breakout develops 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 $44 to $46, or even $47 to $50 a share.

I would avoid Oracle 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 $39.93 a share and its 200-day moving average of $39.75 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 $39.10 a share to $38.50, or even $37.60 to $35 a share.

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