Xyratex

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

An earnings short-squeeze play in the computer storage devices industry is Xyratex ( XRTX), which is set to release numbers on Thursday after the market close. This is a provider of modular enterprise-class data storage subsystems and storage process technology. Wall Street analysts, on average, expect Xyratex to report revenue of $351.16 million on earnings of 18 cents per share.

This stock is looking strong in front of the quarter since it managed to breakout intraday on Tuesday above $9.08 a share. This breakout happened after the stock found some big buying support at around $7.60 a share during the past two months. That stock failed to close above the breakout price but it closed only 8 cents off that level at $9 a share.

The current short interest as a percentage of the float for Xyratex is just over 6%. That means that out of the 29.63 million shares in the tradable float, 1.87 million are sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 5.9%, or by around 104,400 shares. If the bears are caught learning the wrong way here heading into the quarter, then we could easily see a large short-squeeze develop.

From a technical standpoint, this stock is trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. That said, the stock is starting to challenge that stiff overhead resistance and breakout zone at $9.08 a share. The challenge of that resistance level is coming after the stock traded sideways for the past two months, between $7.50 and $9.08 a share.

>>Practice your stock trading strategies and win cash in our stock game.

The way I would play this name is to wait until after its report their results and buy the stock if it manages to hold above that key breakout level of $9.08 a share. If that level holds, I would buy the stock off any strength and add to long positions once it then takes out $10.50 a share with volume. Look for volume tracking in close to or above its three-month average action of 317,000 shares. Target a run back towards $12 a share or possibly even higher if the bulls can spark a short-squeeze post-earnings.

I would short this name after earnings only if the stock trades back below its 50-day moving average of $8.75 a share on solid volume. I would add to any short position if the stock then takes out that important support zone at around $7.50 a share. Target a drop back towards $6 a share if the bears hammer this lower post-earnings.

Xyratex is one of the top-yielding computer hardware stocks.

If you liked this article you might like

Caterpillar Leads Dow to Records, S&P 500 Also at All-Time Highs

S&P 500 and Dow Score Records With Wall Street Upbeat Ahead of Fed

Nvidia Inspires Chipmaker Gains but Rest of Tech Gets Left Behind

S&P 500 and Dow on Track for Records With Markets in Good Mood Ahead of Fed

Why Apple Is Increasingly Investing in Its Suppliers, Including Possibly Toshiba