On April 13th, AAOI gapped up more than 10% on company news. But the news was just fluff! So after the jump the stock faded the entire day dropping from $50 to $45. This jump formed a gap fill area for AAOI between its April 12th’s close at $40.82 and April 13th’s $45, a $4 range. If the stock broke below $45, it had the potential to drop all the way down to $40.82 in a matter of days. When you see stocks reacting to news, it can offer some of the best plays of the year.
Gap Fill - AAOI's Bigger Picture
On April 17th, AAOI gapped up slight at the open and put in a dead cat bounce intraday. After the fake spike up, the stock broke back down underneath its VWAP. Right here we shorted it at $45.69 at 9:42 AM with a stop above the high of the day at $46.50. Sure enough AAOI dropped, putting in a new green to red setup. So, I added to my position at $45.28 at 9:45 AM. AAOI continued to fall and I scaled out of the move at $44.91 and $44.80. Throughout the rest of the day $AAOI continued to setup bear flag after bear flag. Naturally, we traded it a couple more times ending up with more than $800.
Sometimes we have to focus on looking at the news and trying to figure out on the bigger picture, what should be happening. It’s important to have a thesis behind your trade and guide your decisions. Remember, you’re only as good as the stocks your trade.
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