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.

Alibaba

My first earnings short-squeeze trade idea is China-based online and mobile commerce player Alibaba (BABA) , which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect Alibaba to report revenue of $7.32 billion on earnings of $1.13 per share.

The current short interest as a percentage of the float for Alibaba is pretty high at 10.1%. That means that out of the 1.08 billion shares in the tradable float, 110.19 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.7%, or by about 2.93 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 scramble to cover some of their positions.

From a technical perspective, Alibaba 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 $86.01 a share to the recent high of $97.90 a share. During that uptrend, shares of Alibaba 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 overhead resistance levels.

If you're bullish on Alibaba, 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 $98 to around $100 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 12.01 million shares. If that breakout triggers post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $104 to $105, or even $108 to its 52-week high of $109.87 a share.

I would simply avoid Alibaba 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 $92.66 a share and its 50-day moving average of $92.27 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 200-day moving average of $89.72 a share to $88, or even $86 to $82 a share.

Freeport-McMoRan

Another potential earnings short-squeeze trading opportunity is natural resource player Freeport-McMoRan (FCX) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Freeport-McMoRan to report revenue of $4.36 billion on earnings of 33 cents per share.

The current short interest as a percentage of the float for Freeport-McMoRan is notable at 5.2%. That means that out of the 1.24 billion shares in the tradable float, 65.81 million shares are sold short by the bears.

From a technical perspective, Freeport-McMoRan 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 $13.13 a share to its recent high of $15.94 a share. During that uptrend, shares of Freeport-McMoRan have been making mostly higher lows and higher highs, which is bullish technical price action. That strong 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 in the bull camp on Freeport-McMoRan, 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 $15.94 to $16.08 a share and then above its 52-week high of $16.42 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 32.37 million 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 move are $20 to $23 a share.

I would simply avoid Freeport-McMoRan 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 $14.70 a share and some near-term support at $14.51 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 $13.13 to its 200-day moving average of $12.08 a share.

Synaptics

Another potential earnings short-squeeze candidate is technology player Synaptics (SYNA) , which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Synaptics to report revenue of $448.24 million on earnings of $1.29 per share.

The current short interest as a percentage of the float for Synaptics is pretty high at 10.5%. That means that out of the 34.67 million shares in the tradable float, 3.66 million shares are sold short by the bears.

From a technical perspective, Synaptics is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been consolidating and trending sideways over the last two months, with shares moving between $51.10 a share on the downside and $59.62 a share 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 Synaptics.

If you're bullish on Synaptics, 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 $56.75 to $57 a share and then above $59.62 to its 200-day moving average of $59.66 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 628,905 shares. If that breakout hits post-earnings, then this stock will set up to refill some of its previous gap-down-day zone from last October that started near $70 a share.

I would avoid Synaptics or look for short-biased trades if after earnings it fails to trigger that breakout and then drops below some near-term support levels at $53 to $51.63 a share and then under more support at $51.10 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 $48.87 to $48.64 a share or its 52-week low of $47.09 a share.

Electronics for Imaging

Another earnings short-squeeze prospect is computer peripherals player Electronics for Imaging (EFII) , which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Electronics for Imaging to report revenue of $271.93 million on earnings of 74 cents per share.

The current short interest as a percentage of the float for Electronics for Imaging is very high at 14.2%. That means that out of 46.13 million shares in the tradable float, 6.54 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 4.4%, or by about 278,000 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 positions.

From a technical perspective, Electronics for Imaging is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $42.90 to $43.11 a share over the last month. Following that potential bottom, this stock has now started to spike a bit higher and move back above both its 50-day and 200-day moving averages. That spike is now quickly pushing shares of Electronics for Imaging within range of triggering a big breakout trade above some key near-term overhead resistance levels.

If you're bullish on Electronics for Imaging, 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 $45.20 to $45.34 a share and then above more resistance at $46.02 a share with high volume. Look for volume on that move that registers near or above the three-month average action of 408,789 shares. If that breakout kicks off post-earnings, then this stock will set up to retest or possibly take out its next major overhead resistance levels at $48.50 to its 52-week high of $50.09 a share.

I would simply avoid Electronics for Imaging or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back to those recent double bottom support levels 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 $41.95 to $41.17, or even $40 to $38 a share.

RPC

My final earnings short-squeeze trade idea is oil and gas equipment and services player RPC (RES) , which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect RPC to report revenue of $208.57 million on a loss of 13 cents per share.

The current short interest as a percentage of the float for RPC is extremely high at 44.3%. That means that out of the 67.70 million shares in the tradable float, 30.03 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1%, or by about 302,000 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, RPC is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strongly over the last six months, with shares moving higher off the low of $13.46 a share to the recent high of $22.28 a share. During that uptrend, shares of RPC have been making mostly higher lows and higher highs, which is bullish technical price action. That strong move to the upside has now pushed this stock within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're in the bull camp on RPC then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 52-week high of $22.28 a share and then above some past resistance at $24.51 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.72 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. Some possible upside targets off that move are $30 to $35 a share.

I would avoid RPC and 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 $20.93 a share and its 50-day moving average of $19.97 a share and then below more near-term support at $19.50 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 $18.50 to $17.40, or even its 200-day moving average of $16.56 a share.

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

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