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.

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.

>>5 Stocks Poised for Breakouts

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.

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.

SolarCity

My first earnings short-squeeze play is solar energy systems player SolarCity (SCTY), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect SolarCity to report revenue of $43.07 million on a loss of 55 cents per share. Recently, Baird downgraded shares of SolarCity to neutral from outperform and maintained its $81 price target on the solar panel maker due to valuation.

The current short interest as a percentage of the float for SolarCity is extremely high at 24.6%. That means that out of the 37.93 million shares in the tradable float, 9.34 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 16%, or by about 1.28 million shares. If the bears get caught pressing their bets into a bullish quarter, then shares of SCTY could easily explode higher post-earnings as the shorts rush to cover some of their trades.

From a technical perspective, SCTY is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last two months and change, with shares soaring higher from its low of $42.38 to its recent high of $79.99 a share. During that uptrend, shares of SCTY have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SCTY within range of triggering a major breakout trade post-earnings.

If you're bullish on SCTY, then I would wait until after its report and look for long-biased trades if this stock manages to break out above its all-time high of $79.99 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 4.15 million shares. If that breakout comes to fruition, then SCTY will set up to enter new all-time-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $95 to $100 a share, or even north of $100 a share.

I would simply avoid SCTY 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 $73.74 to $69.40 a share with high volume. If we get that move, the SCTY will set up to re-test or possibly take out its next major support levels at its 50-day moving average of $66.35 to $60 a share.

First Solar

Another potential earnings short-squeeze trade idea is solar energy player First Solar (FSLR), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect First Solar to report revenue $965.38 million on earnings of 99 cents per share.

The current short interest as a percentage of the float for First Solar is very high at 16.4%. That means that out of the 72.53 million shares in the tradable float, 11.93 million shares are sold short by the bears. This is a high short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily spark a large short-squeeze for shares of FSLR post-earnings.

From a technical perspective, FSLR 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, with shares moving higher from its low of $47.04 to its recent high of $57.95 a share. During that move, shares of FSLR have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of FSLR within range of triggering a big breakout trade post-earnings.

If you're in the bull camp on FSLR, 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 $57.95 to $58.30 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 3.59 million shares. If that breakout hits, then FSLR will set up to re-test or possibly take out its next major overhead resistance levels at $62.50 to its 52-week high at $65.99 a share. Any high-volume move above those levels will then give FLSR a chance to tag $70 to $80 a share.

I would simply avoid FSLR 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 $52.86 a share with high volume. If we get that move, then FSLR will set up to re-test or possibly take out its next major support levels at its 200-day moving average of $49.24 a share to $47 a share.

BioScrip

Another potential earnings short-squeeze candidate is pharmacy and home health services provider BioScrip (BIOS), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect BioScrip to report revenue of $237.58 million on earnings of 2 cents per share.

The current short interest as a percentage of the float for BioScrip is very high at 17.4%. That means that out of the 54.91 million shares in the tradable float, 9.6 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 19.3%, or by about 1.55 million shares. If the bears get caught pressing their bets into a strong quarter, then shares of BIOS could easily surge sharply higher post-earnings as the shorts jump to cover some of their positions.

From a technical perspective, BIOS 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 strong over the last three months, with shares soaring higher from its low of $5.61 to its recent high of $9.05 a share. During that uptrend, shares of BIOS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BIOS within range of triggering a major breakout trade post-earnings.

If you're bullish on BIOS, 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 at $9.05 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.45 million shares. If that breakout hits, then BIOS will set up to re-test or possibly take out its next major overhead resistance levels at its 200-day moving average of $10.74 a share to $11.95 a share, or even $13 a share.

I would avoid BIOS 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 $8 a share to its 50-day moving average of $7.74 a share with high volume. If we get that move, then BIOS will set up to re-test or possibly take out its next major support levels at $6.99 to $6.96 a share. Any high-volume move below those levels will then put $6.50 to $6 a share into range for shares of BIOS.

Noodles

Another earnings short-squeeze prospect is quick service restaurant player Noodles (NDLS), which is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect Noodles to report revenue of $92.52 million on earnings of 12 cents per share.

The current short interest as a percentage of the float for Noodles is pretty high at 10.9%. That means that out of the 21.03 million shares in the tradable float, 2.29 million shares are sold short by the bears. This is a decent short interest on a stock with a very low tradable float. Any bullish earnings news could easily spark a sharp short-covering rally post-earnings as the bears rush to cover some of their bets.

From a technical perspective, NDLS is currently trending above its 50-day moving average, which is bullish. This stock has been consolidating and trending sideways for the last two months, with shares moving between $33.40 on the downside and $40.41 on the upside. Shares of NDLS are now starting to trend higher above its 50-day moving average and it's starting to move within range of triggering a near-term breakout trade above the upper-end of its recent range post-earnings.

If you're bullish on NDLS, 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 $39 to $40.41 a share and then once it clears $41.48 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 398,870 shares. If that breakout hits, then NDLS will set up to re-test or possibly take out its next major overhead resistance levels at 44 to $48 a share, or even $50 a share.

I would simply avoid NDLS 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 $36.47 a share to more near-term support levels at $35.10 to $33.40 a share with high volume. If we get that move, then NDLS will set up to re-test or possibly take out its next major support level at its 52-week low of $32 a share. Any high-volume move below that level will then push shares of NDLS into new 52-week-low territory, which is bearish technical price action.

SodaStream International

My final earnings short-squeeze play is home beverage carbonation systems and related products maker SodaStream International (SODA), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect SodaStream International to report revenue of $167.33 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for SodaStream International is extremely high at 42.7%. That means that out of the 17.5 million shares in the tradable float, 7.50 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of SODA could easily explode sharply higher post-earnings as the bears move quickly to cover some of their trades.

From a technical perspective, SODA is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been uptrending a bit over the last month, with shares moving higher from its low of $35.27 to its recent high of $44.88 a share. During that uptrend, shares of SODA have been making mostly higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SODA within range of triggering a near-term breakout trade post-earnings

If you're in the bull camp on SODA, 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 $431.10 to its 50-day at $43.72 a share and then once it takes out more key overhead resistance at $44.88 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 1.63 million shares. If that breakout materializes, then SODA will set up to re-fill some of its previous gap-down-day zone from January that started at around $50 a share. If that gap gets filled with strong volume, then shares of SODA could easily tag $55 to $57 a share, or even $60 a share.

I would avoid SODA 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 at $39.45 a share with high volume. If we get that move, then SODA will set up to re-test or possibly take out its next major support levels at $35.27 to $33.15 a share. Any high-volume move below those levels will then set up SODA to re-test or possibly take out its next major support levels at $30 to $28 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.