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Digi International

One earnings short-squeeze play in the computer hardware complex is Digi International ( DGII), which is set to release numbers on Thursday after the market close. Wall Street analysts, on average, expect Digi International to report earnings of 2 cents per share on revenue of $48.54 million.

This stock is currently trading right below some key breakout levels that could get taken out after they report their results. Of course, that will be dependent on if Digi International reports bullish earnings and issues upbeat guidance.

The current short interest as a percentage of the float for Digi International stands at 6.6%. That means that out of the 25.41 million shares in the tradable float, 1.68 million are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 2.6%, or by about 42,000 shares. If the bears are caught leaning to strong into this quarter, then we could easily see a sizable short-squeeze develop.

From a technical standpoint, DGII is currently trading above both its 50-day moving average and right below its 200-day moving average, which is neutral trendwise. This stock formed a bottom in November and December at around $9.87 to $10.12 a share. After marking that bottom, the stock has started to uptrend to its current price of just under $12 a share. Now shares of DGII are setting up to breakout if the bulls like what they hear post-earnings.

If you're bullish on DGII, I would wait until after they report and buy the stock if it takes out $11.92 to $12.05 with volume. Look for a breakout on volume that's tracking in close to or well above its three-month average action of 117.760 shares. If we get that action, I would then add to any long positions if DGII takes out $12.98 with volume. Target a run back toward $14.21 if the bulls gain control of this stock post-earnings

I would only look to short DGII after earnings if it fails to trade back above its 200-day moving average of $12.08 a share with volume. If that level acts as stiff resistance, then I would add to any shorts once DGII then takes out $10.93 with volume. Target a drop back toward $10 a share if the bears hammer this lower post-earnings.

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