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TheStreet Open House

5 Earnings Short-Squeeze Trades

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Cyberonics

My final earnings short-squeeze play is medical equipment and supplies player Cyberonics (CYBX), which is set to release numbers on Wednesday before the market open. This is neuromodulation company engages in the design, development, sale, and marketing of implantable medical devices that provide vagus nerve stimulation therapy for the treatment of refractory epilepsy and treatment-resistant depression. Wall Street analysts, on average, expect Cyberonics to report revenue of $56.61 million on earnings of 35 cents per share.

If you're looking for a stock that's been uptrending pretty strong heading into its earnings report, then make sure to check out shares of Cyberonics. This stock is up 13% so far in 2012, and its currently trending just a few points off of its 52-week high of $40.29 a share. The current short interest as a percentage of the float for Cyberonics is rather high at 9.3%. That means that out of the 23.45 million shares in the tradable float, 2.44 million are sold short by the bears.

From a technical perspective, CYBX is currently above its 200-day moving average and below its 50-day moving average, which is neutral trendwise. This stock has soared during the last six months, from a low of $23 to a recent high of $40.29 a share. During that run, shares of CYBX have mostly made higher highs and higher lows, which is bullish technical price action. That said, during the last three months, CYBX has been moving sideways between $40.29 on the upside and $35 on the downside. A move outside of that range post-earnings should setup the next major trend for CYBX.

If you're bullish on CYBX, I would wait until after they report and look for long-biased trades if this stock triggers a major break out above $39.48 to $40.29 a share with high-volume. Look for volume on that move that's near or above its three-month average volume of 195,305 shares. If we get that move, then CYBX will be trading in new 52-week high territory, and the stock could hit $45 to $50 in the near future.

I would simply avoid CYBX or look for short-biased trades if it fails to trigger that breakout, and then drops below some near-term support at $37.23 to $35.75 a share with high-volume. If we get that action, then I would target a drop down toward $34 to possibly its 200-day moving average of $32.96 a share if the bears spark a major selloff post-earnings.

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

-- Written by Roberto Pedone in Winderemere, Fla.

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This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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