If you're someone that finds great investments among the high SCTR (StockCharts Technical Rank) stocks, you probably enjoy better than average returns most of the time. However, Friday was not one of those times. The NASDAQ 100, clearly the best performing index among our major indices in 2017, was trounced on Friday. The technology sector (XLK)? Again, the XLK is our best performing sector and it was trounced. The high SCTR stocks (ie, best relative performers) also were trounced on Friday as everything that had been working......suddenly stopped working. Many of these stocks will likely offer up great short-term trading opportunities as panicked sellers drive prices lower very quickly. You'll need to have a strong stomach, but Applied Optoelectronics (AAOI) could be one of those stocks that offer up a quick, high reward to risk trade. Here's the chart after Friday's bloodbath:
The negative divergence provided warning signs that price momentum was slowing. Then the sellers hit on Friday and AAOI lost 11.5% and most of the gains it had realized over the past month. Volume was very heavy on the selling and it wouldn't take much more selling for AAOI to hit its first key level of price support near 60. The rising 50 day SMA is just above 57 and that's always a potential target when a negative divergence surfaces. Finally, with the 2017 uptrend line in the upper 50s, it would seem that any reversing candle in the 57-60 area could provide a very solid short-term entry point on the long side.
Happy trading!
Tom
