This Overpriced Stock Looks Set to Plummet

by Sam Collins | February 21, 2013 1:14 am

Cree Inc. (NASDAQ:CREE[1]) – This semiconductor maker focuses most of its expertise on LED products, but competition in that arena is fierce and CREE has not lived up to its potential.

The stock was downgraded by several research analysts this week. One analyst noted that the stock was trading at a forward price-to-earnings (P/E) multiple of 35, an indication that it is at a historically high price compared to its earnings potential.

Within the past week, two sell signals were generated from our internal indicator, the Collins-Bollinger Reversal (CBR), and on Wednesday, the MACD indicator flashed a sell signal. Stocks trading more than 30% above their 200-day moving average are usually considered “overpriced.” CREE is selling at more than 50% above its 200-day moving average.

Sell CREE short with a minimum price objective of $38, its 50-day moving average. It may even fall to the bottom of the gap created in January between $34.60 and $38.27. As with all short sales, check with your broker for any margin requirements and the ability to borrow the stock. A stop-loss order should always be entered after the execution of a short sale in order to protect against the possibility of an unlimited loss.

CREE Chart
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Trade of the Day Chart Key

  1. CREE:

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