Lufkin Industries

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

One earnings short-squeeze play in the oil well services and equipment complex is Lufkin Industries ( LUFK), which is set to release numbers on Wednesday before the market open. On average, Wall Street analysts expect Lufkin Industries, a global supplier of oil field and power transmission products, to report revenue of $242.52 million on earnings of 60 cents per share.

This company has missed estimates for the last three consecutive quarters, but profits have risen year over year by an average of more than twofold for the past five quarters. This company recently cut its forecast for the third quarter, blaming materials shortages, shipment delays and other issues. The question now is whether these issues are priced into the stock and whether the company can say anything positive that could spike it post-earnings.

>>5 Rocket Stocks for Earnings Season

The current short interest as a percentage of the float for Lufkin Industries is a notable 7.3%. That means that out of the 29.64 million shares in the tradable float, 2.17 million are sold short by the bears. This is another low float high short interest situation, so this is one name I am expecting a lot of volatility in post-earnings.

From a technical standpoint, this stock is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been stuck in a nasty downtrend for the past five months, with shares regularly making lower highs and lower lows. That said, when the company recently cut its guidance, the stock sold off sharply on big volume. Since that selloff, the stock has rebounded from $42.10 to its current price of just over $50 a share.

The way I would play this stock is to wait until after they report and buy the stock if it breaks out above $52.32 a share with big volume. Look for volume that's tracking in close to or above its three-month average action of 618,800 shares. I would target a run back towards its 50-day moving average of $59.63 if the bulls can spark a short covering rally post-earnings.

I would get short this stock after it reports earnings only if it drops below $48 to $47.50 a share on heavy volume. Those levels are big previous support zones, so if the stock breaks below them, look for a sharp selloff. I would target a drop back towards $42.10 or possibly even lower if the bears whack this name lower post-earnings.

If you liked this article you might like

The Method Behind My Investing Madness: Cramer's 'Mad Money' Recap (Wed 9/6/17)

Novartis AG, Sirius XM Radio, Coupa Software: 'Mad Money' Lightning Round

August's Inexplicable Selloffs Are Here: Cramer's 'Mad Money' Recap (8/17/17)

Blue Apron, Philip Morris, Honeywell, Becton Dickinson: 'Mad Money' Lightning Round