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)

AAOI appears to have formed a down-channel over the past couple of months. A channel is simply formed through the combination of a trend line support that runs parallel to a trend line resistance.

When it comes to channels, remember that any (3) points can start the channel, but a 4th point or more confirms it. You can see that AAOI seems to be approaching channel support.

The Tale of the Tape: AAOI has formed a common pattern known as a channel, in this case a down channel. A long trade could be entered on a pullback down to the channel support, or on a break through the channel resistance. Short opportunities would be on rallies up to channel resistance or on a break of channel support.

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