This Is Why AAOI Stock Is Currently Geared Toward Higher Prices

 Applied Optoelectronics stock
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AAOI Stock: Has Found Its Footing

The elevated levels of volatility that were responsible for creating the wild market swings that characterized the first quarter have begun to subside, which means that this manic trading environment is coming to an end and cooler heads are once again likely to prevail. Subsiding levels of volatility can suggest that the markets are setting up to make another attempt toward further gains.

Throughout this market turmoil, I have continued to look for stocks that are geared toward higher stock prices, because I continue to believe that the predominant market trend is still tilted toward higher values.

I am returning to focus on Applied Optoelectronics Inc (NASDAQ:AAOI) stock because Applied Optoelectronics stock has found its footing on a very significant level of price support, and the subsequent rally is being supported by a very influential momentum indicator suggesting that further gains are on the horizon.

The following applied Optoelectronics stock chart illustrates the significant level of price support where AAOI stock has found its footing.

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Chart courtesy of StockCharts.com

The significant level of price support highlighted on the AAOI stock chart currently resides at $24.75.

This level of price support was a previous level of price resistance that was first established in March 2014, using the monthly closing high. This level was revisited once again in November 2016, and on the third attempt in January 2017, Applied Optoelectronics stock was finally able to close above that price point, setting off a flurry of buying pressure that fueled an epic move toward higher stock prices.

For the next seven months, AAOI stock appreciated substantially, tacking on 317.82%. After the stock peaked at $103.41, an equally painful sell-off followed. Applied Optoelectronics stock has gone full circle since breaking above resistance and it successfully tested this significant price point in March 2018.

Returning to test a previous level of price resistance is called a backtest and it serves to establish the previous level of price resistance as a new level of price support. Successful backtests act like springboards, so it’s not a mere coincidence that once this level was successfully tested, higher stock prices prevailed.

These moves toward higher and lower stock prices have been supported by a very influential momentum indicator, which is highlighted on the following AAOI stock chart.

Chart courtesy of StockCharts.com

The moving average convergence/divergence (MACD) indicator highlighted on the Applied Optoelectronics stock chart has been very precise in suggesting which direction AAOI stock is trending in.

MACD is an indicator that determines whether bullish or bearish momentum is influencing the trading action in a stock. Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.

Momentum is a very significant driving force because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it, and the MACD signals generated on the AAOI stock chart are a testament to this notion.

In July 2016, a bullish MACD cross was generated, correctly implying that Applied Optoelectronics stock was geared toward higher stock prices. For the next 12 months, while the MACD indicator was in bullish alignment, AAOI shares appreciated to the tune of 490.9%.

Maintaining this bullish signal for such a duration was not an easy task, and a bearish cross was averted on three separate occasions. Each time, the stock price proceeded to accelerate its ascent in response.

It was not until July 2017 that the repercussions from the bullish MACD cross were finally negated when a bearish MACD cross was generated. This signal implied that Applied Optoelectronics stock was geared toward lower prices and a painful correction followed.

It was not until April 2018, after the significant level of price support was established, that a bullish MACD signal was finally generated, suggesting that AAOI stock is now likely to appreciate because it is geared for such an outcome.

Analyst Take

Applied Optoelectronics stock recently found its footing on a previous level of price resistance, establishing it as a new significant level of price support. After this level of price support was established, an influential momentum indicator generated a bullish signal, implying that AAOI stock is currently geared toward higher prices.

As a result of these developments, I am bullish on AAOI shares and will remain so as long as the stock price remains above this newly established level of price support and the MACD indicator remains in bullish alignment.