Applied Optoelectronics Inc (NASDAQ: AAOI)

Applied Optoelectronics, Inc. designs, manufactures, and sells various fiber-optic networking products worldwide. It offers optical modules, lasers, transmitters and transceivers, and turn-key equipment, as well as headend, node, and distribution equipment.

Take a look at the 1-year chart of Applied (NASDAQ: AAOI) below with my added notations:

1-year chart of Applied (NASDAQ: AAOI)

During the past nine months, AAOI has formed a level of resistance to watch at the $50 (red) mark. The stock has tested that mark twice since mid-October. A solid close above that $50 level would most likely lead to higher prices for AAOI.

The Tale of the Tape: AAOI has a key level of resistance at $50. A long trade could be entered on a break through that level. However, if you are bearish on the stock, a short trade could be made on any rallies up to $50.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT