Why Wolfspeed's Recent Rally is a Sell Opportunity

The recent rebound in Wolfspeed (NYSE: WOLF) shares—from a nadir of $0.41 in late June to a brief surge above $1—has sparked hope among investors. However, beneath the surface of this short-lived rally lies a technical and fundamental landscape that suggests this is a prime sell opportunity, not a buy signal. Let's dissect the data.

Technical Analysis: An Oversold Rally, Not a Reversal

Wolfspeed's rally since mid-June has been fueled by an extreme technical overreaction. As of June 30, 2025, the 14-day RSI (Relative Strength Index) stood at 25.62, firmly in oversold territory (below 30). This triggered a classic “dead cat bounce,” as short-term traders bought the dip. Yet, this rebound lacks the momentum to sustain a reversal.

The death cross—a bearish signal when the 50-day moving average (MA) drops below the 200-day MA—remains intact. As of June 30, the 50-day MA ($2.12) was far above the stock price ($0.41), while the 200-day MA ($6.88) loomed like a ceiling. Additionally, every major moving average (MA5 to MA200) remained above the price, generating consistent Sell signals.

Even bullish oscillators like the MACD (12,26) (-0.51) and StochRSI (14) (1.57) are outweighed by bearish momentum. The Rate of Change (ROC) at -70.50 and the Ultimate Oscillator at 15.67—both deep in oversold/distribution zones—confirm that downward pressure remains dominant. This rally is a correction, not a new trend.

Debt Restructuring: Silver Lining or Overhyped Fix?

Wolfspeed's Chapter 11 restructuring—aimed at slashing debt by $4.6 billion (70%) and cutting interest costs by 60%—has been marketed as a lifeline. However, the limitations of this plan expose lingering risks:

1. Equity Dilution: Existing shareholders will own just 3-5% of the new common equity post-restructuring, with 95% going to debt holders. This massive dilution undermines long-term stakeholder value.
2. Execution Risks: Completing the restructuring by Q3 2025 hinges on court approvals and lender cooperation. Delays could prolong liquidity strain, especially with cash reserves at $1.3 billion—a figure that may not stretch if receivables slow.
3. Operational Uncertainty: Despite claims of “business as usual,” the company faces supply chain challenges and intense competition from giants like Infineon and STMicroelectronics. Silicon carbide adoption, while growing, remains fragile in volatile markets.

The restructuring is a necessary step but does not address core profitability. Wolfspeed's 200mm silicon carbide production is a long-term bet, and investors must ask: Can the company convert this into sustainable margins before the next downturn?

Short Interest and Volume: A Volatile Foundation

The rally has also been amplified by short-covering, as short interest—though not reported for Q2 2025—was already 21.74% of the float as of August 2024. With shares up nearly 150% on restructuring news, shorts rushed to close positions, artificially inflating volume.

However, this volume surge lacks institutional buying. Retail traders dominate the recent activity, and without buy-side conviction, the rally is vulnerable to profit-taking. The floating short interest (if it remains elevated post-Q2) could lead to another squeeze, but without fundamentals, this is a trap for the unwary.

Conclusion: Take Profits, Avoid the Trap

The Wolfspeed rally is a textbook oversold bounce, not a sustainable turn. Technicals remain bearish, restructuring risks are unresolved, and the short-term momentum is fueled by speculative short-covering, not fundamentals.

Investment advice:
- Sell: Exit long positions near current levels.
- Short: Consider a cautious short position with tight stops if volatility persists.
- Avoid: Steer clear of long-term bets until profitability materializes and technicals confirm a reversal (e.g., a bullish engulfing candle above $2.12).

Wolfspeed's story is far from over, but this rally is a correction of extreme undervaluation, not the start of a new era. The odds favor a return to the downtrend—sell now, or risk the drop.