Earnings season hits with a fury this week, with around 100 S&P 500 companies on the holiday-shortened schedule. Sometimes selecting among too many reports can be as tricky as searching among just a few. We’ll just have to make do with this week’s riches.

One company we have a bearish eye on is LED maker Cree Inc. (NASDAQ: CREE). The company and stock have been getting hammered of late with a series of earnings downgrades. The bad news has pushed the stock to a series of annual lows. In fact, the shares are currently trading at their lowest point since November 2009 and are well below their declining 20-day moving average.

Cree Inc. (NASDAQ: CREE)

So can the stock go lower after it reports actual earnings on Tuesday after the close? We think so, and here’s why. You’d think a company that has been pummeled on earnings and whose stock is down more than 40% from its December high would be inundated with pessimism. You would be wrong. The put/call and short-interest ratios are actually declining, while 18 of 28 covering analysts rate the stock a “buy” (with just two “sells” among the bunch). That tells us there’s lots of potential selling pressure waiting to be unleashed once these bulls jump to the bearish camp.

What’s more, CREE has a terrible record of performance after recent earnings reports.   In fact, the stock has dropped an average of 11% in just the one day following the past three reports. And despite the recent earnings warning, the stock is being set up for another disappointment based on misplaced optimism among the shorts, options players, and analysts.

Look for CREE to sink even lower after reporting on Tuesday night. Buy the CREE May 40 Put for around two bucks.