We are now seeing the same thing with Vision China Media and many other heavily shorted China small-caps.

CleanTech has seen a number of dramatic squeezes in the past. But the next squeeze is likely to be a bit larger. This is because the short interest is now larger and because CleanTech is likely to come out with stronger earnings.

Last year the stock doubled in a single day due to a single bullish article from one author who predicted a $19 share price. In May, the stock nearly tripled in a single day when CleanTech announced that it had become a certified supplier to China Petroleum & Chemical ( SNP), or Sinopec. Such a rise was clearly premature because CleanTech hadn't actually sold them anything yet.

Anyone who follows CleanTech should now expect the company will report very strong numbers in the next two weeks. I have always viewed bullish news from CleanTech with some skepticism. But positive news has consistently boosted the stock anyway.

In August, CleanTech announced that revenue increased 34% to over $17 million for the quarter. The stock quickly soared by as much as 30% in extended hours trading.

On the last earnings call, CleanTech previewed that it had received a $2 million order, which would not ship until September. Obviously this will factor into the third-quarter numbers. CleanTech had also noted that it was operating at full capacity. This is also a hint at strong third-quarter numbers.

The Sinopec announcement is now nearly six months old. So one major risk for the short thesis is that an initial order could materialize this quarter. Even a small order would have a very large effect on the share price.

Regardless of what one thinks about the transparency at CleanTech, it seems highly likely the company will announce very strong results. Any move to the upside may be even more exaggerated than past moves due to the recent price spikes in many heavily shorted China small-caps.

For the time being, a short position in CleanTech is a very risky proposition without much possibility of near-term gains. As a result, I am no longer short and have taken a small speculative long position in CleanTech. This is a short-term trade as opposed to a long-term investment, but it is likely to pay off in the near term.

If shares of CleanTech stabilize at over $13 I will likely re-enter a short position after earnings are announced.

At the time of publication the authoris long shares of CLNT.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Rick Pearson is a private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.

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