Cree, Inc. (NASDAQ:CREE) — This former semiconductor high-flyer has fallen on hard times with the expectation of poor earnings and revenues. It is, however, still a leading developer and maker of semiconductor devices made from advanced materials.
However Standard & Poor’s and others see revenues declining 13% in fiscal year 2017, which ends in June, negatively impacted by recent product delays and service disruptions. And pricing pressure from China’s LED manufacturers will continue to put pressure on Cree’s ability to have enough pricing flexibility to have a positive impact on revenues.
In August, S&P cut their FY 2017 EPS estimate to 62 cents from 98 cents, and on Wednesday Cree issued a lower-than-expected forecast for the next quarter, admitting that the LED lighting segment has fallen behind management’s expectations. With the announcement of declining revenues from management, Deutsche Bank lowered the price expectations for the stock by $4 to $22.
Technically, the high-volume breakdown on Tuesday, with its gap down from a right triangle, tells us that CREE has entered a bear market. The right triangle, which began forming in January, has had several high-volume gaps down in the last 10 months. However, this week’s break is the first to fail at the 50-day moving average and then it sliced through the bullish support line at $24, a huge bearish event.
Thus traders should consider CREE as a candidate for a short sale at $22 or higher with a target of $18 for a proposed trade of 22%.
As with any short sale, check with your broker for any special items that would prohibit a short and place a stop-loss order to protect against a rally.
