Struggling Photonics Stock Flashing 'Buy the Dip' Signal

Applied Optoelectronics Inc (NASDAQ:AAOI) stock is down 11.3% to trade at $86.71, as the AI infrastructure trade wobbles. Despite a 12.7% quarterly drawdown already, the pullback has the photonics stock testing a historically bullish trendline on the charts.

Per Schaeffer's Senior Quantitative Analyst Rocky White, AAOI is within 0.75 of the 260-day moving average's 20-day average true range (ATR), after remaining above it 80% of the time during the past two weeks and 80% of the last 42 trading sessions. This signal has occurred four times over the past 10 years, after which the stock was higher one month later 75% of the time with an average 14.8% gain. 

A move higher of similar magnitude would put the shares back on the cusp of $100. Year over year, the stock remains 202% higher, another level of potential support to monitor. 

There's some modest short squeeze potential too, with short interest up nearly 15% in the two most recent reporting periods and the 13.87 million shares sold short accounting for 18.1% of AAOI's total available float.

For those looking to weigh in, options look like a good way to go. The equity's Schaeffer's Volatility Index (SVI) sits in the 13th percentile of its annual range, meaning options traders are pricing in low volatility expectations.