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5 Earnings Short-Squeeze Trades

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Another potential earnings short-squeeze trade is Cree (CREE - Get Report), set to report results on Tuesday after the market close. This company develops and manufactures semiconductor materials and devices primarily based on silicon carbide, gallium nitride and related compounds. Wall Street analysts, on average, expect Cree to report earnings of 26 cents per share on revenues of $309.85 million.

This company has been inconsistent with earrings, wavering between beating and failing to beat Wall Street estimates during the past fiscal year. That earnings inconsistency has even lead one firm, Wunderlich to recently say that estimates for Cree remain too high.

The current short interest as a percentage of the float for Cree is very high at 13.4%. That means that out of the 112.54 million shares in the tradable float, 15.12 million are sold short by the bears. If Cree can manage to show that their earnings results are back on track, then this stock could easily see a big short-squeeze since there are many bears involved in the stock.

From a technical standpoint, CREE is currently trading below both its 50-day and 200-day moving averages, which is bearish. The stock recently put in a near-term bottom at $20.25 a share, and since then it has started to uptrend toward its current price of $23.52. During that uptrend, CREE has been making higher lows and higher highs, which is bullish price action. That said, the stock won't look really bullish until it can breakout above some key near-term resistance levels.

If you're bullish on CREE, I would wait until after they report their results and buy the stock once it breaks out above $23.92 and above its 50-day moving average of $24.48 with heavy volume. Look for volume that's tracking in close to or above its three-month average action of 3.1 million shares. If we get that high-volume breakout post-earnings, then look for CREE to trade back toward its next significant overhead resistance level at $26.02 a share. I would add to any long positions if that level is then taken out with volume.

I would avoid any long trades or get short CREE after earnings if it fails to clear its 50-day with volume. If that level holds up as resistance, then I would get short and add to any short positions once CREE takes out $21.38 with volume. Target a drop back toward $20.25, or possibly much lower if the bears hammer this stock post-earnings.
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