Semiconductor Stock Ripe for a Short Squeeze

It's been an excellent year for semiconductor name Cree, Inc. (NASDAQ:CREE) stock, which boasts a 26% lead in 2018 and a 77% gain year-over-year. Earlier this month, the stock pulled back to the $42 level -- an area that coincides with 50% of its 2010 high and its supportive 120-day moving average. As CREE bounces from this strong support, now is an ideal time to bet on the stock's next leg higher.

Despite the stock's outperformance, analysts have remained on the sidelines. Of the eight brokerages covering CREE, seven rate it a "hold" or "strong sell." What's more, the stock's average 12-month price target sits at $40.70, a 15% discount from the stock's closing perch on Friday. This implies that the security is overdue for a round of upgrades and/or price-target hikes that could drive CREE higher.

A short squeeze could also provide more tailwinds. Short interest fell by 14% in the two most recent reporting periods, yet the 9.80 million shares sold short represent 10% of CREE's total available float, and more than eight days' worth of potential buying power.

In the options pits, a large number of overhead calls at the 47 strike expired at the close on Friday, eliminating a potential layer of options-related resistance. What's more, CREE's Schaeffer's Volatility Scorecard (SVS) of 86 out of a possible 100 indicates the stock has tended to realize greater volatility than what the options market has priced in over the past year.