Chart Offers Silver Lining For Struggling Oil Services Stock

RES calls have been much more popular than puts

Patrick Martin
Jan 25, 2018 at 12:18 PM
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While some blue-chips cash in, earnings season hasn't been kind to everyone. RPC Inc (NYSE:RES) reported weaker-than-expected fourth quarter earnings yesterday, sending the oil equipment stock to its worst single-day session in over two years. No fewer than nine brokerages have since chimed in with price-target cuts, including a cut to $21 from $25 at Credit Suisse -- the lowest of the bunch. In response, RES shares are down 3.8% to trade at $21.50, pulling back to their 200- and 320-day moving averages. The one silver lining for this struggling stock is these pullbacks historically offer bullish implications.

According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last six pullbacks to the 200-day moving average in the past three years, RES stock was up an average 8.25% one month later, and higher 83% of the time. Following the last four pullbacks to the 320-day moving average, the oil name was up an average 17.48% one month later, and positive 100% of the time. A move of similar magnitude would have RES stock filling its earnings-induced bear gap from earlier in the week. 

180125pullbacksRES

Although RES is short-sale restricted today, short sellers are likely cheering the stock's recent struggles. The 23.15 million shares sold short represents a whopping 33% of the total available float, and more than 30 days of pent-up buying power. 

In the options pits, the attitude remains overwhelmingly bullish, albeit with light trading volume. The equity has a 10-day call/put volume ratio of 7.48 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), meaning call buying has outnumbered put buying by a more than 7-to-1 ratio.

Digging deeper, the February 26 call saw the largest increase in open interest during this time, and in fact the strike is now home to peak open interest for all RPC Inc options. For anyone who bought to open the front-month call, the goal is for the shares to rise above $26 before expiration on Friday, Dec. 16.


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