Wednesday, 5 July 2017

Unlocking The Secret To Trading AAOI: Buy Before The Friday Short Covering

We have been a big fan of Applied Optoelectronics (AAOI) since early May with our report "AAOI: Eight Reasons To Expect This Tech Unicorn To Double By The End Of 2017" along with several follow up reports since then. While we think the stock could reach as high as $250, we believe that we have unlocked a secret to winning short term trades on the stock as well. We have paid close attention to the price movement of the stock over the past two months and noticed a very consistent pattern.

This trick is particularly useful for weekly options players. Always buy before the Friday short covering. Have a look at the price history since the start of May with relevant numbers highlighted in green and red. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel.

DateOpenHighLowCloseAdj Close*Volume
Jul 05, 2017
Jul 03, 201762.4163.7561.0461.3961.39970,600
Jun 30, 201761.7463.6260.4361.7961.792,414,000
Jun 29, 201760.1660.8558.7760.0060.001,365,100
Jun 28, 201759.6261.1958.0061.0061.001,986,100
Jun 27, 201761.3062.2358.2758.4458.442,748,300
Jun 26, 201765.0165.0160.7661.5961.594,653,100
Jun 23, 201763.6067.1863.3565.8765.872,987,900
Jun 22, 201763.0663.9461.9263.5863.581,315,700
Jun 21, 201761.1064.3061.0963.1063.101,830,400
Jun 20, 201763.2363.7560.8961.0861.082,002,100
Jun 19, 201763.3065.2362.2963.2063.202,596,600
Jun 16, 201762.2363.1560.1062.8862.882,978,300
Jun 15, 201758.2562.9957.5562.2362.234,006,600
Jun 14, 201764.0064.9059.6160.9560.953,749,400
Jun 13, 201766.7167.8563.2563.8563.853,186,000
Jun 12, 201763.5266.8960.0264.6164.614,931,200
Jun 09, 201773.8974.0062.0464.7164.715,292,300
Jun 08, 201771.7373.1770.7173.1473.142,045,000
Jun 07, 201773.3073.8770.0371.4871.482,756,500
Jun 06, 201771.3575.5970.5073.4173.412,964,600
Jun 05, 201774.9675.0071.8072.4472.442,754,700
Jun 02, 201772.0574.7371.7674.6874.683,986,800
Jun 01, 201770.0571.3669.4470.0170.011,857,300
May 31, 201771.0771.6568.7269.8269.822,395,600
May 30, 201771.2071.8169.1170.4870.482,283,700
May 26, 201767.3772.9567.1271.5171.513,885,000
May 25, 201768.8069.8966.3067.8867.882,555,900
May 24, 201768.2570.2367.8668.6368.632,010,100
May 23, 201771.6071.7067.0669.1569.153,771,600
May 22, 201766.0071.3465.8071.2471.246,771,200
May 19, 201764.7465.9363.5063.5463.542,271,300
May 18, 201760.0665.3058.9663.9863.983,947,300
May 17, 201763.0464.0060.1061.3861.383,507,000
May 16, 201764.1165.2462.5364.9764.972,528,000
May 15, 201765.8066.4063.2564.0164.013,112,500
May 12, 201764.2467.0163.2265.4565.453,004,300
May 11, 201764.0565.3362.0864.2364.233,543,900
May 10, 201761.8165.0061.3664.9764.973,932,300
May 09, 201757.7562.6456.0162.1162.115,046,800
May 08, 201757.1560.0056.5557.3957.395,314,600
May 05, 201751.5356.3048.5055.9655.9610,854,900
May 04, 201747.3048.7546.3446.8146.812,998,200
May 03, 201745.9946.9245.0146.4746.472,121,300
May 02, 201749.9850.3046.2747.3047.302,694,000
May 01, 201750.2552.1049.3350.1350.133,243,700

On Friday, May 5th, the jump from $46.81 to $55.96 was justified because of strong Q1 earnings.

On Thursday, May 11th, AAOI opened at $64.05 but dipped $2 to $62.08 before recovering by the end of the day to $64.23. May 12th was another winning Friday with the stock hitting as high as $67.01 before settling at $65.45. Buying the Thursday dip and selling on the Friday rip, or even setting up a stop loss could have resulted in nearly a $5 win with perfect timing and luck. But more realistically even a win of $2 to $3 could have been had.

On Thursday, May 18th, the stock opened at $60.06 and dipped to $58.96 before ending the day strong at $63.98. The next day the stock actually ended down at $63.54 but did hit as high as $65.93. Another opportunity to make as much as $7 with perfect timing but more realistically at least $3 or $4.

On Thursday, May 25th, the stock opened at $68.80. Unlike the prior two Thursdays, it had a weak close at $67.88 but the next day it closed up to $71.51 and nearly hit $73 so no matter what price you paid for it on Thursday, you still made money on Friday.

The trading pattern on June 1st and June 2nd was very similar to the prior week. You wouldn't have made much money searching for a dip on the Thursday, but as long as you got in around $70 by the end of the day, you made good money on the Friday as it closed at $74.68.

For June 8th and June 9th the numbers are red because this is the one week where this trading strategy blew up. The stock dropped from $73.14 on Thursday's close to $64.71 on Friday. Still, had you bought on the dip on Thursday as low as $70.71 but at least under $72, you would have had a chance to sell at $74 or at least take a stop loss and break even in the low $70's before it really cratered.

On Thursday, June 15th, AAOI's dip occurred right away with the stock opening down over $2 from Wednesday's close and providing people an opportunity to buy in under $58 before ripping to a $62.23 close. Friday was relatively uneventful with a close of $62.88 but you still already made the money the previous day. Even if you had a stop loss taken out at Friday's day low of $60.10 for fear of the stock repeating the prior week's performance, you still made a couple of bucks

On Thursday, June 22th, AAOI opened at $63.06, dropped as low as $61.92 and closed at $63.58. If you missed out buying near the lows as that was not much of a dip, even buying over $63 was profitable as AAOI closed at $65.87 the next day and traded over $67.

June 29th and 30th had a very similar trading pattern as the previous week. Not much of a dip on the Thursday but even if you bought in at $60 by day's end, you had a chance to make $2 to $3 with a high of $63.62 and a close of $61.79 on Friday.

What we believe is happening is that shorts are controlling the stock price earlier on in the week, but as the weekend nears they don't want to hold over the weekend for fear of a positive news event like a buyout and will cover before Friday's close, sending the stock price up.

Here's our recommendation for Thursday, July 6th based on AAOI's close of $60.62 on Wednesday. Buy anything under $59 on Thursday, and if it never goes that low, buy it near the end of the day. If you're looking for just a quick couple of dollars profit, sell on the rip on Friday.

Disclosure: We are long AAOI

If you're interested in winning sports betting picks, try the Z Code System

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Ocean Of Gold Report are for you.

No comments:

Post a Comment