Silicon Graphics International

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One earnings short-squeeze idea in the computer systems complex is high-end computer servers and storage systems developer Silicon Graphics International ( SGI), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Silicon Graphics to report revenue of $163.79 million on earnings of 4 cents per share.

This is a heavily shorted stock that's trending strong heading into the quarter, since shares have been making higher highs and higher lows since hitting a low of $10.45 in October. This stock now sets up to break out after earnings if the company can deliver solid earnings and bullish guidance. tThe current short interest as a percentage of the float for Silicon Graphics is an extremely large 24.3%. That means that out of the 28.66 million shares in the tradable float, 7.48 million are sold short by the bears. The short-sellers have also been increasing their bets from the last reporting period by 4.1%, or by about 292,200 shares. The bears could be pressing into the quarter, so look for any strength after the report to long this name.

From a technical standpoint, this equity is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. During the past six months, this stock has been finding buying support at $11 to $10.50 a share and selling pressure anywhere above $16 a share.

The way I would play this stock is to wait until after its report and buy if it trades back above its 200-day moving average of $15.75 on strong volume. Look for volume that's tracking in close to or above its three-month average action of 654,700 shares. If that level is taken out, I would then add to any long position once the stock moves above $17 to $17.71 a share on strong volume. Target a run back towards $19 to $23 if the bulls push this higher post-earnings.

I would only get short this stock after they report earnings if it drops below its 50-day moving average of $13.85 a share on heavy volume. I would add then add to any short position if $11.90 is taken out with volume. I would target a drop back towards $10.50 a share or possibly even lower if the bears whack this lower post-earnings.

Silicon Graphics shows up on a list of 7 Tech Stocks With Limited Downside.

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