2 Penny Stocks for Your Trading Portfolio

A couple of "penny stocks" created a blip on our trading radar this week. Specifically, LCD panel provider AU Optronics Corp (ADR) (NYSE:AUO) and video infrastructure concern Harmonic Inc (NASDAQ:HLIT) sent up potential "buy" signals on the charts. Below, we'll take a look at AUO stock and HLIT stock, both of which could benefit from a short squeeze.

AUO Stock Attempting to Fill Bear Gap

The shares of AU Optronics are up 2% at $4.00, attempting to fill an earnings bear gap from May 8. Since skimming the $3.63 level in mid-May, AUO stock has rallied more than 10%, and recently retook its 50-day moving average -- a solid "buy" signal for stocks in the recent past. However, the overhead $4.30-$4.40 region has acted as a ceiling for AU Optronics stock since mid-2016, and is roughly two times the security's early 2016 lows.

Analysts remain wary of AUO stock, with just one out of four offering up a "buy" or better rating. Should the shares continue their upward momentum, a round of upgrades or positive initiations could lure more buyers to the table. Meanwhile, short interest skyrocketed nearly 35% during the past two reporting periods, and would take more than two weeks to buy back, at AU Optronics stock's average daily trading volume.

HLIT Stock On the Rebound

Harmonic stock is down 0.9% to trade at $5.45 today. However, the shares yesterday retook their own 50-day moving average for the first time since an early May bear gap, when traders panned the company's steeper-than-expected per-share earnings loss and lackluster outlook. Since falling as low as $4.85 in mid-May, HLIT stock has rebounded roughly 13%, though rally attempts have stalled in the overhead $6 area since mid-2016. In fact, the $6 level is a roughly 61.8% Fibonacci retracement of Harmonic stock's decline from 2015-2016.

As with AUO, the shares of HLIT remain plagued by pessimism. Just 40% of covering analysts consider the equity worthy of a "buy" or better endorsement, and short interest represents nearly 14% of the stock's total available float. At Harmonic stock's average daily trading volume, it would take about 14 sessions to buy back these bearish bets. Should the recent retake of its 50-day moving average prove, in fact, to be a "buy" signal, a round of upbeat analyst attention or a short squeeze could add fuel to the equity's fire.

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