Ciena

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My final earnings short-squeeze play today is Ciena ( CIEN), which is set to release numbers on Thursday before the market open. This company is a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic. Wall Street analysts, on average, expect Ciena to report revenue of $473.54 million on a loss of 2 cents per share.

On Monday, Needham reiterated its buy rating on shares of Ciena and raised its price target to $19 per share from its previous target of $16 per share. This stock is trending very strong heading into its report this week, with shares up around 40% so far in 2012. Shares of Ciena are trending just two points off its 52-week high of $18.39 a share as we near its earnings report.

The current short interest as a percentage of the float for Ciena is extremely high at 26%. That means that out of the 97.09 million shares in the tradable float, 25.10 million are sold short by the bears. This is a very high short interest on a stock that's trending strong into its report. Any bullish earnings news could easily spark a solid short-covering rally post-earnings.

From a technical perspective, CIEN is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock formed a major bottom back in May at around $11.44 to $11.65 a share. After marking that bottom, shares of CIEN exploded higher and hit a recent high of $18.39 a share. During that monster move, shares of CIEN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed CIEN within range of triggering a major breakout trade post-earning.

If you're bullish on CIEN, then I would wait until after they report earnings and look for long-biased trades if it can manage to trigger a break out above some near-term overhead resistance at $17.26 to $17.85 a share and then above its 52-week high of $18.39 a share with high volume. Look for volume on that move that registers near or above its three-month average volume of 6,005,590 shares. If we get that move, then CIEN will have a great chance of heading well north of $20 a share post-earnings.

I would simply avoid CIEN or look for short-biased trades after earnings if it fails to trigger that breakout, and then moves back below its 50-day moving average of $16.03 a share with heavy volume. If we get that action, then CIEN will setup to re-test and possibly take out its 200-day moving average of $14.60 a share post-earnings.

To see more potential earnings short squeeze plays, check out the Earnings Short Squeeze Plays portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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