Fabrinet

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Another earnings short-squeeze trade idea is semiconductor player Fabrinet ( FN), which is set to release its numbers on Monday after the market close. This company provides precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products, such as optical communication components, modules and sub-systems. Wall Street analysts, on average, expect Fabrinet to report revenue of $141.5 million on earnings of 26 cents per share.

The current short interest as a percentage of the float for Fabrinet stands at 7.1%. That means that out of the 34.47 million shares in the tradable float, 1.54 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 3.8%, or by about 56,000 million shares. If the bears are caught leaning too hard into this quarter, then we could easily see an explosive short-squeeze develop post-earnings.

From a technical perspective, FN is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trending inside of a sideways trading pattern for the last four months, with shares moving between $10.19 on the downside and $13.50 on the upside. A move outside of that sideways trading pattern post-earnings will likely setup the next major trend for FN.

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If you're in the bull camp on FN, then I would wait until after they report and look for long-biased trades if this stock manages to trigger a break out above some near-term overhead resistance levels at $13.20 to $13.50 a share, and then above its 200-day moving average of $14.67 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 141,809 shares. If we get that move, FN will have a great chance or re-testing and possibly taking out its next major overhead resistance level at $17.08 a share.

I would simply avoid FN or look for short-biased trades if after earnings this stock fails to trigger that breakout, and then moves back below its 50-day moving average of $12.07 a share and some more near-term support at $11.40 a share with heavy volume. If we get that move, then FN will setup to re-test and possibly take out its next major support levels at $10.90 to $10.19 a share post-earnings.

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