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.

FuelCell Energy

My first earnings short-squeeze play is integrated fuel cell player FuelCell Energy (FCEL), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect FuelCell Energy to report revenue of $45.18 million on a loss of 3 cents per share.

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The current short interest as a percentage of the float for FuelCell Energy is extremely high at 16.2%. That means that out of the 218.41 million shares in the tradable float, 35.48 million shares are sold short by the bears. This is a large short interest, so any bullish earnings news could easily spark a sharp short-covering rally that forces the bears to cover some of their positions.

From a technical perspective, FCEL is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending a bit for the last few weeks, with shares moving higher from its low of $1.86 to its recent high of $2.48 a share. During that move, shares of FCEL have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FCEL within range of triggering a major breakout trade post-earnings.

If you're bullish on FCEL, 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 $2.48 to $2.63 a share and then once it clears more key resistance levels at $2.81 to $2.94 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 24.09 million shares. If that breakout hits post-earnings, then FCEL will set up to re-test or possibly take out its next major overhead resistance levels at $3.75 to its 52-week high of $4.74 a share.

I would simply avoid FCEL 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 $2.31 a share high volume. If we get that move, then FCEL will set up to re-test or possibly take out its next major support levels at $2 to $1.86 a share, or even its 200-day moving average of $1.75 a share.

RealD

Another potential earnings short-squeeze trade idea is three dimensional (3D) technologies licensor RealD (RLD), which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect RealD to report revenue $33.66 million on a loss of 23 cents per share.

This company has beaten earnings estimates by at least 50% for the previous two quarterly reports. During the most recent quarter, RealD was expected to report a loss of 9 cents per share, but it actually delivered a loss of a penny per share, which represents an 88.9% positive earnings surprise.

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The current short interest as a percentage of the float for RealD is pretty high at 10.5%. That means that out of the 35.69 million shares in the tradable float, 3.76 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily produce a large short-covering rally for shares of RLD as the bears rush to cover some of their bets.

From a technical perspective, RLD is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been trending sideways and consolidating for the last month, with shares moving between $10.89 on the downside and $12.30 on the upside. Any high-volume move above the upper-end of its sideways trading chart pattern post-earnings could easily trigger a big breakout trade for shares of RLD.

If you're in the bull camp on RLD, 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 $12.05 to $12.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 273,008 shares. If that breakout starts post-earnings, then RLD will set up to re-test or possibly take out its next major overhead resistance levels at $14 to its 52-week high of $16.05 a share.

I would simply avoid RLD 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 $10.90 to $10.89 a share with high volume. If we get that move, then RLD will set up to re-test or possibly take out its next major support levels at $9.83 to its 200-day moving average of $9.20 a share.

G-III Apparel Group

Another potential earnings short-squeeze candidate is apparel and accessories designer and manufacturer G-III Apparel Group (GIII), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect G-III Apparel Group to report revenue of $346.13 million on a loss of 15 cents per share.

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The current short interest as a percentage of the float for G-III Apparel Group is very high at 9.5%. That means that out of the 17.09 million shares in the tradable float, 1.64 million shares are sold short by the bears. This is decent short interest on a stock with a very low tradable float. If the bulls get the earnings news they're looking for, then shares of GIII could easily explode sharply higher post-earnings as the bears jump to cover some of their trades.

From a technical perspective, GIII is currently trending above its 50-day and its 200-day moving averages, which is bullish. This stock recently crossed back above its 50-day moving average of $72.44 a share. That move is starting to push shares of GIII within range of triggering a major breakout trade post-earnings above some key near-term overhead resistance levels.

If you're bullish on GIII, 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 $74.59 to $74.68 a share and then once it clears more resistance at $75.69 to its 52-week high at $77.22 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 216,022 shares. If that breakout begins post-earnings, then GIII will set up to enter new 52-week-high territory above $77.22, which is bullish technical price action. Some possible upside targets off that breakout are $80 to $90 a share.

I would avoid GIII 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 $72.45 a share with high volume. If we get that move, then GIII will set up to re-test or possibly take out its next major support levels at $68.45 to $67.66 a share. Any high-volume move below those levels will then give GIII a chance to re-test or take out its 200-day moving average of $64.51 a share.

Five Below

Another earnings short-squeeze prospect is specialty value retailer Five Below (FIVE), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Five Below to report revenue of $121.91 million on earnings of 6 cents per share.

Just this morning, Jefferies said its field checks indicate Five Below saw improving trends through the quarter. The firm raised its first-quarter comp sales estimate to the high end of the company's 3% to 4% guidance and reiterated a buy rating on the stock. Also this morning, UBS said it expects Five Below to meet or beat its estimate of 6 cents per share, which is in line with consensus. The firm has a buy rating with a $49 per share price target on the stock.

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The current short interest as a percentage of the float for Five Below is extremely high at 18%. That means that out of the 48.57 million shares in the tradable float, 8.76 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of FIVE could easily rip sharply higher post-earnings as the bears rush to cover some of their positions.

From a technical perspective, FIVE is currently trending below both its 50-day and is 200-day moving averages, which is bearish. This stock recently formed a double bottom chart pattern at $34.77 to $34.62 a share. Shares of FIVE have now started to spike higher a bit off those support levels and it's quickly moving within range of triggering a near-term breakout trade post-earnings.

If you're bullish on FIVE, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its 50-day moving average of $38.67 to more near-term resistance at $39.08 a share high volume. Look for volume on that move that hits near or above its three-month average action of 979,147 shares. If that breakout hits post-earnings, then FIVE will set up to re-test or possibly take out its next major overhead resistance levels $41.05 to its 200-day moving average of $41.94 a share. Any high-volume move above those levels will then give FIVE a chance to tag or take out its next major overhead resistance levels at $44.35 to $45.14 a share.

I would simply avoid FIVE or look for short-biased trades if after earnings it fails to trigger that breakout and then takes out those double bottom support levels at $34.62 to $34.77 a share and then breaks below its 52-week low of $33.94 a share high volume. If we get that move, then FIVE will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are its next major support levels at $30.82 to $27.73 a share.

Leidos

My final earnings short-squeeze play is science and technology solutions provider Leidos (LDOS), which is set to release numbers on Wednesday before the open. Wall Street analysts, on average, expect Leidos to report revenue of $1.26 billion on earnings of 54 cents per share.

The current short interest as a percentage of the float for Leidos stands at 7%. That means that out of the 78.33 million shares in the tradable float, 4.42 million shares are sold short by the bears. This is not a huge short interest, but it's more than enough to spark a decent short-covering rally post-earnings if the bulls get the earnings news they're looking for.

From a technical perspective, LDOS is currently trending above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been uptrending over the last two months, with shares moving higher from its low of $33.71 to its intraday high of $38.66 a share. During that uptrend, shares of LDOS have been consistently making higher lows and higher highs, which is bullish technical price action.

If you're in the bull camp on LDOS, then I would wait until after its report and look for long-biased trades if this stock manages to break out above Monday's intraday high of $38.66 a share or above Tuesday's intraday high if it's greater with high volume. Look for volume on that move that hits near or above its three-month average volume of 973,962 shares. If that breakout starts post-earnings, then LDOS will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $42.53 to $43 a share. Any high-volume move above those levels will then give LDOS a chance to tag its next major overhead resistance levels at $45 to $46 a share, or even its 52-week high at $49.18 a share.

I would avoid LDOS 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 $37.54 a share with high volume. If we get that move, then LDOS will set up to re-test or possibly take out its next major support levels at $36.52 to $35.70 a share. If those levels get taken out with volume, then LDOS will have a chance to tag its next major support levels at $33.71 to its 52-week low of $31.51 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.