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.

Natural Health Trends

My first earnings short-squeeze trade idea is personal products player Natural Health Trends (NHTC) , which is set to release numbers on Wednesday before the market open. There are currently no analysts' estimates available for this company.

The current short interest as a percentage of the float for Natural Health Trends is extremely high at 40.5%. That means that out of the 6.31 million shares in the tradable float, 2.55 million shares are sold short by the bears.

From a technical perspective, Natural Health Trends is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock recently formed a double bottom chart pattern, after shares found some buying interest at $24 to $24.01 a share over the last two months. Following that potential bottom, this stock has now started to spike higher and move back above both its 20-day moving average of $24.24 a share and its 50-day moving average of $25.26 a share. That spike is now starting to push shares of Natural Health Trends within range of triggering a big breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Natural Health Trends, 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 $26 to $27 a share and then above more resistance at $27.50 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 73,581 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 $30 to $31, or even $33 to $34 a share.

I would simply avoid Natural Health Trends or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back those recent double bottom support levels 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 $21 to $20.50, or even its 52-week low of $19.37 a share.

Twitter

Another potential earnings short-squeeze play is global social media platform operator Twitter (TWTR) , which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Twitter to report revenue of $740.13 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Twitter stands at 7.1%. That means that out of the 612.33 million shares in the tradable float, 44.03 million shares are sold short by the bears.

From a technical perspective, Twitter is currently trending just barely above both its 50-day and 200-day moving averages, which is bullish. This stock has been consolidating and trending sideways over the last month and change, with shares moving between $16.16 a share on the downside and $17.92 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 Twitter.

If you're in the bull camp on Twitter, 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 at $17.92 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 16.66 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 $19.84 to $21 a share. Any high-volume move above $21 will then give this stock a chance to re-fill some of its previous gap-down-day zone from last October that started near $25 a share.

I would simply avoid Twitter 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 $17.11 a share and then below some key near-term support levels at $16.33 to $16.16 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 $15.69 to $14, or even its 52-week low of $13.73 a share.

Panera Bread

Another potential earnings short-squeeze candidate is specialty eateries player Panera Bread (PNRA) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Panera Bread to report revenue of $727.61 million on earnings of $2.00 per share.

Panera Bread is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells PNRA? Learn more now.

The current short interest as a percentage of the float for Panera Bread is pretty high at 12.7%. That means that out of the 21.64 million shares in the tradable float, 2.76 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 12.9%, or by about 315,000 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, Panera Bread 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 is low of $205.23 a share to its intraday high on Monday of $219.20 a share. During that uptrend, shares of Panera Bread have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend is now quickly pushing shares of Panera Bread within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Panera Bread, 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 $220 to its 52-week high of $224.15 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 412,865 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 breakout are $230 to $235, or even $240 to $245 a share.

I would avoid Panera Bread 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 $212.74 a share and its 50-day moving average of $211.94 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 $209.23 a share to $205.23, or even $201 a share.

Zillow Group

Another earnings short-squeeze prospect is Internet information provider Zillow Group (Z) , which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Zillow Group to report revenue of $223.39 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Zillow Group is extremely high at 21.2%. That means that out of 113.68 million shares in the tradable float, 24.15 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 2.4%, or by about 568,000 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, Zillow Group is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock is spiking notably higher on Monday back above both its 20-day moving average of $36.45 a share and its 50-day moving average of $36.63 a share with strong upside volume flows. This high-volume bump to the upside is now starting to push shares of Zillow Group within range of triggering a major breakout trade post-earnings above some key overhead resistance levels.

If you're bullish on Zillow Group, 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 $37.50 to $37.73 a share and then above $39.05 to its all-time high of $39.88 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.52 million shares. If that breakout triggers post-earnings, then this stock will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $45 to $50, or even $55 to $60 a share.

I would simply avoid Zillow Group 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 $34.74 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 $31.50 to $31, or even $29 to $28 a share.

CBOE Holdings

My final earnings short-squeeze trading opportunity is financial player CBOE Holdings (CBOE) , which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect CBOE Holdings to report revenue of $160.10 million on earnings of 60 cents per share.

The current short interest as a percentage of the float for CBOE Holdings is notable at 8.3%. That means that out of the 76.14 million shares in the tradable float, 6.35 million shares are sold short by the bears.

From a technical perspective, CBOE 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 three months, with shares moving higher off its low of $61.36 a share to its recent high of $79.99 a share. During that uptrend, shares of CBOE Holdings have been making mostly higher lows and higher highs, which is bullish technical price action. That uptrend has now moved shares of CBOE Holdings within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on CBOE 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 $79 to its 52-week high of $79.99 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 821,271 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 $85 to $90, or even $95 to $100 a share.

I would avoid CBOE Holdings 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 $76.50 a share and its 50-day moving average of $74.65 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 $72.50 to $70, or even its 200-day moving average of $67.95 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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