Cyberonics

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Another possible earnings short-squeeze play is medical equipment and supplies player Cyberonics ( CYBX), which is set to release numbers on Tuesday before the market open. This company offers vagus nerve stimulation therapy, a neuromodulation therapy for the treatment of refractory epilepsy and treatment-resistant depression, and other device solutions for the management of epilepsy. Wall Street analysts, on average, expect Cyberonics to report revenue of $58.45 million on earnings of 36 cents per share.

This company has topped Wall Street estimates during the last four quarters. Over that timeframe, the average earnings surprise was a positive 15.73%. William Blair recently initiated coverage on Cyberonics with an outperform rating. This stock has been off to strong start in 2012, with shares up over 30% so far.

The current short interest as a percentage of the float for Cyberonics stands at 8.4%. That means that out of the 24.01 million shares in the tradable float, 2.22 million shares are sold short by the bears. This is a decent short interest on a stock with an extremely low float. Any bullish news out of Cyberonics that the bulls like could easily spark a large short-squeeze post-earnings.

From a technical perspective, CYBX is currently trading above its 200-day moving average and right below its 50-day moving average, which is neutral trendwise. During the last four months, shares of Cyberonics have been uptrending strong with shares trending higher from $36.25 to its recent high of $47.39 a share. During that uptrend, shares of CYBX have consistently made higher lows and higher highs, which is bullish technical price action. That move has pushed CYBX within range of triggering a near-term breakout trade.

If you're in the bull camp on CYBX, then I would look for long-biased trades after earnings if this stock manages to trigger breakout trade above some near-term overhead resistance levels at $45.58 to $46.05 a share, and then above its 52-week high of $47.39 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 245,684 shares. If we get that move, then look for CYBX to trade north of $50 a share post-earnings.

I would simply avoid CYBX or look for short-biased trades after earnings the stock fails to trigger that breakout, and then moves back below some near-term support at $43.57 to $42.25 a share with high volume. If we get that action, then look for CYBX to re-test and possibly take out its next significant support levels at $40 to $41 a share, or possibly even its 200-day moving average of $37.80 a share.

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