RF Micro Devices

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My first earnings short-squeeze trade idea is semiconductor player RF Micro Devices ( RFMD), which is set to release its numbers on Tuesday after the market close. Wall Street analysts, on average, expect RF Micro Devices to report revenue of $225.04 million on earnings of 3 cents per share.

During the last quarter, RF Micro Devices beat Wall Street estimates by 1 cent. The company has seen its income trend lower year over year by an average of 22.5% over the past five quarters. Revenue has trended down for the past three quarters.

The current short interest as a percentage of the float for RF Micro Devices is pretty high at 9.4%. That means that out of the 271.27 million shares in the tradable float, 25.62 million shares are sold short by the bears.

From a technical standpoint, RFMD is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend for the past couple of months. During that downtrend, the stock has dropped from $7.89 in October to a recent low of $4.41 a share. That recent low came on a large gap down in price on heavy volume. Shares of RFMD have started to rally a bit from that gap down to its current price of just under $5 a share.

If you're bullish on RFMD, I would get long after they report their earnings if the stock breaks out above some near-term overhead resistance at $5.17 a share on high-volume. Look for volume that's tracking in close to or above its three-month action of 7,524,560 shares. If we get that action, I would then look for RFMD to take out its 50-day moving average of $5.61 and re-test its 200-day moving average of $6.10, or possibly hit $6.50 a share.

I would avoid this stock completely from the long side If RFMD fails to break out over $5.17 a share with volume after its earnings report. A failure to break out should set this stock up to re-test that recent low of $4.41 and blow right through it. If RFMD losses $4.41 with volume post-earnings, then this stock could easily trade back toward its next major support zone at $3.65 a share.

As of the most recently reported period, RF Micro is one of the top holdings at Discovery Capital Management.

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