The Gilmo Report

August 6, 2017

August 6, 2017

Earnings roulette season is in full swing, and has come with its share of big winners and equally big losers. On Friday, we saw the #1 stock in the #1 stock group, Applied Optoelectronics (AAOI) blow up in spectacular fashion with a 30% gap-down move. After posting a 50% or so rally over the prior month as it briefly flirted with the $100 Century Mark, AAOI provided disappointing guidance in its Thursday afternoon earnings report.

Of course, AAOI and its cousins weren’t looking too good as of Wednesday, per my discussion of these optical names in that day’s report. On that day AAOI and Lumentum Holdings (LITE) posted big outside reversals on higher volume. Perhaps they were giving investors a clue, but the bottom line is that AAOI should have been sold, at least in part, once it got over 20% above its 10-day moving average two weeks ago, as I discussed and tweeted at the time.

Friday’s move was so bad that it could have been treated as a shortable gap-down once it pushed below the 50-day line, because it just kept going lower from there. By the close AAOI posted a -34.07% loss for the day. When I look at this chart, two words come to mind with respect to the selling: brutal and merciless.

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