Mellanox Technologies

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Another potential earnings short-squeeze play is Mellanox Technologies ( MLNX), which produces and supplies semiconductor interconnect products that facilitate efficient data transmission between servers, storage systems and communications infrastructure equipment and other embedded systems. Mellanox is set to release numbers on Wednesday after the market close. Wall Street analysts, on average, expect the company to report revenue of $150.07 million on earnings of $1.13 per share.

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Mellanox smashed Wall Street estimates in the first and second quarters off bullish demand for its products, sending shares exploding higher by more than 50% and 40%. On a year-over-year basis, revenue has trended extremely strong registering more than 61% in the first quarter and almost 111% in the second quarter.

The current short interest as a percentage of the float for Mellanox Technologies stands at 7.7%. That means that out of the 35.65 million shares in the tradable float, 2.57 million shares are sold short by the bears. This stock has a decent short interest and a very low tradable float. If the bulls get the news their looking for, then this stock could easily see a sharp short covering rally post-earnings.

From a technical perspective, MLNX is currently trading below its 50-day moving average and well above its 200-day moving average, which is neutral trend-wise. This stock has been trending range bound for the last two months, with shares moving between $94.81 on the downside and $111.98 on the upside. A move outside of that range post-earnings will likely setup the next major trend for MLNX.

If you're bullish on MLNX, then I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance levels at $106.77 to $111.98 a share with high volume. Look for volume on that move that tracks in at near or above its three-month average volume of 1.3 million shares. If MLNX triggers that breakout, then this stock will setup to re-test or possibly take out its next significant overhead resistance level at $120.05 a share. Any move above that level will push MLNX into new 52-week-high territory, which is bullish technical price action.

I would avoid MLNX or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops below some near-term support at $98.34 to $94.81 a share with volume. If we get that action, then MLNX will setup to re-test or possibly take out its next major support level at $85.63 a share. If that level gets taken out with volume, then MLNX could re-fill its previous gap back down towards $65 a share.

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