Last week’s TOW failed to trigger at new highs.  Our first observation this week is that the major market indexes are in damage control as the closing prices on Friday were not an ideal setup for the Bulls going into this week. It is too early to suggest a short side defensive idea and we do not want to just throw out the “go to CASH” signal either. 

So we have located a long side idea that looks to use short sellers as additional fuel assuming the trade triggers thru the buy point. “Let’s go Fishing” is a Trade Ideas Top List scan that looks for companies that are healthy on the fundamental side and also look good for a technical trend reversal on the daily chart.  Applied Optoelectronics (AAOI) is a low float small cap company that fits this idea well having a high percentage of short sellers still in this name.  It’s notable to mention the strength of small cap stocks lately if the market does decide to dig in and move higher. You can watch (IWM) index to see the health of small-cap stocks.

The Trade of the Week in AAOI will be considered live above 45.40. The suggested stop is on the chart as the Swing Exit line at 39.98. Watch for the possibility of a trigger above 45.40 and then a reversal. If the stock trades above the entry price then reverses along with a market that is also selling off, you may consider keeping this idea very tight and cutting losses well before the swing exit. But if the market behaves and buyers show up, then you could give this trade more wiggle room if it triggers above 45.40. A good upside target for this idea will be 55.00.