DELAFIELD, Wis. (Stockpickr) -- 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.

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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 technically very bullish 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 The Street doesn't like the numbers or guidance.

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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, here's a look at several stocks that could experience big short squeezes when they report earnings this week.

YRC Worldwide

My first earnings short-squeeze play is transportation services player YRC Worldwide (YRCW), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect YRC Worldwide to report revenue of $1.18 billion on a loss of $2.77 per share.

The current short interest as a percentage of the float for YRC Worldwide is extremely high at 63.94%. That means that out of the 6.60 million shares in the tradable float, 4.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 18.1%, or by about 647,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of YRCW could easily rip sharply higher post-earnings as the shorts jump to cover some of their trades.

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From a technical perspective, YRCW is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has trending sideways and consolidating for the last month, with shares moving between $20.09 on the downside and $23.93 on the upside. Any high-volume move above the upper-end of its recent range post-earnings will put shares of YRCW in position to trigger a major breakout trade.

If you're bullish on YRCW, 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 $23.93 to $25 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.51 million shares. If that breakout materializes, then YRCW will set up to re-fill some of its previous gap-down-day zone from last August that started just above $30 a share. If that gap gets filled with strong upside volume flows, then YRCW could easily tag its net major overhead resistance levels at $35 to $37 a share.

I would simply avoid YRCW 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 $21 to $20.09 a share with high volume. If we get that move, the YRCW will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $18.28 a share to its 200-day moving average of $18.60 a share. If those levels get lost, then YRCW is heading towards $15 to $14 a share.

Jakks Pacific

Another potential earnings short-squeeze trade idea is Jakks Pacific (JAKK), which develops, produces and markets toys and consumer products in the U.S. and internationally. Jakks is set to release its numbers on Wednesday before the market open. Wall Street analysts, on average, expect the company to report revenue $128.88 million on a loss of 82 cents per share.

The current short interest as a percentage of the float for Jakks Pacific is extremely high at 42.2%. That means that out of the 14.97 million shares in the tradable float, 7.12 million shares are sold short by the bears. This is a huge short interest on a stock with a very low tradable float. Any bullish earnings news could easily set off a monster short-squeeze for shares of JAKK post-earnings.

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From a technical perspective, JAKK is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been dowtrending of late, with shares moving sharply lower from its high of $7.33 to its recent low of $5.45 a share. During that downtrend, shares of JAKK have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of JAKK have now started to rebound off that $5.45 low and it's quickly moving within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on JAKK, 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 $6.05 a share to its 50-day moving average of $6.20 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 305,625 shares. If that breakout triggers, then JAKK will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $6.91 a share to $7.33 a share. Any high-volume move above those levels will then give JAKK a chance to tag its next major overhead resistance level at $9 a share.

I would simply avoid JAKK 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 $5.63 to $5.45 a share with high volume. If we get that move, then JAKK will set up to re-test or possibly take out its next major support level at its 52-week low of $4.45 a share.

Sarepta Therapeutics

Another potential earnings short-squeeze candidate is biopharmaceutical player Sarepta Therapeutics (SRPT), which is set to release numbers on Thursday before the market open. Wall Street analysts, on average, expect Sarepta Therapeutics to report revenue of $4.53 million on a loss of 69 cents per share.

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The current short interest as a percentage of the float for Sarepta Therapeutics is extremely high at 38.2%. That means that out of the 32.37 million shares in the tradable float, 12.63 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 5.2%, or by about 622,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of SRPT could easily soar sharply higher post-earnings as the shorts rush to cover some of their positions.

From a technical perspective, SRPT is currently trending above its 50-day moving average and just below its 200-day moving average, which is neutral trendwise. This stock has been uptrending strong over the last three months and change, with shares soaring higher from its low of $12.12 to its recent high of $31.28 a share. During that uptrend, shares of SRPT have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SRPT within range of triggering a major breakout trade post-earnings.

If you're bullish on SRPT, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $31.28 a share to its 200-day moving average of $32.88 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.94 million shares. If that breakout hits, then SRPT will set up to re-fill some of its previous gap-down-day zone from last November that started near $38 a share. If that gap gets filled with strong upside volume flows, then SRPT could easily tag $42 to $45 a share.

I would avoid SRPT 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 $26 to $25 a share with high volume. If we get that move, then SRPT will set up to re-test or possibly take out its 50-day moving average of $23.18 a share to more near-term support at $22.60 a share.

Rockwell Medical

Another earnings short-squeeze prospect is biopharmaceuticals player Rockwell Medical (RMTI), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Rockwell Medical to report revenue of $14.04 million on a loss of 28 cents per share.

The current short interest as a percentage of the float for Rockwell Medical is extremely high at 23.3%. That means that out of the 34.99 million shares in the tradable float, 8.22 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 1.9%, or by about 153,000 shares. If the bears get caught pressing their bets into a strong quarter, then shares of RMTI could easily rip sharply higher post-earnings as the shorts jump to cover some of their positions.

From a technical perspective, RMTI 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 month and change, with shares soaring higher from its low of $9.90 to its recent high of $13.96 a share. During that uptrend, shares of RMTI have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RMTI within range of triggering a near-term breakout trade post-earnings.

If you're bullish on RMTI, 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 $13,47 a share and then above $13.96 to $13.98 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.01 million shares. If that breakout hits, then RMTI will set up to re-test or possibly take out its next major overhead resistance level at its 52-week high of $15.85 a share. Any high-volume move above that level will then give RMTI a chance to tag $18 to $20 a share.

I would simply avoid RMTI 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 $12.10 a share to its 50-day moving average of $11.19 a share with high volume. If we get that move, then RMTI will set up to re-test or possibly take out its next major support levels at $10 to $9.50 a share. Any high-volume move below those levels will then put its 200-day moving average of $8.71 into range for shares of RMTI.

Solazyme

My final earnings short-squeeze play is renewable oil production player Solazyme (SZYM), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Solazyme to report revenue of $12.11 million on a loss of 39 cents per share. Recently, Cowen said that shares of Solazyme are at an attractive entry point ahead of expected ramp-up in production as its relationship with agribusiness giants reach full potential.

The current short interest as a percentage of the float for Solazyme is extremely high at 21.9%. That means that out of the 48.90 million shares in the tradable float, 10.07 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.3%, or by about 322,000 shares. If the bears get caught pressing their bets into a bullish quarter, then shares of SZYM could easily explode sharply higher post-earnings as the bears rush to cover some of their trades.

From a technical perspective, SZYM is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit over the last few weeks, with shares moving higher from its low of $10.86 to its intraday high of $12.15 a share. During that uptrend, shares of SZYM have been making mostly higher lows and higher highs, which is bullish technical price action. That move is starting to push shares of SZYM within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on SZYM, 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 $12.50 a share to its 52-week high at $13.46 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 764,144 shares. If that breakout materializes, then SZYM will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $16 to $18, or even $20 a share.

I would avoid SZYM 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 at $10.82 and its 50-day moving average of $10.62 a share with high volume. If we get that move, then SZYM will set up to re-test or possibly take out its next major support levels $9.32 to $9 a share, or even $8.50 a share.

To see more potential earnings short squeeze plays, check out the Earnings Short-Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.


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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com.

You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.