Last Friday, the CDC warned that the C-19 variant appears to be as contagious as chickenpox. The CDC warned the variant has a longer transmission window than the original C-19 strain and could make older people sicker.

As a result of these comments, shares of many Mask, PPE, Respiratory product makers soared higher on Friday.

One name, in particular, soared 38.89% on Friday.

Allied Healthcare Products, Inc. (NASD: AHPI)

AHPI, per Yahoo, manufactures and markets respiratory products for use in the healthcare industry in a range of hospitals and alternate site settings worldwide. 

This offering positions the company well to experience growth as cases rise and guidelines strengthen over the virus.

For most of the year, shares of AHPI have been in a range between $4 and $9. Performance over the year is -23.47%. Year to date, the stock is up 69.40%, and last week, the stock closed up 50.55%.

FLOAT: 2.99m

MARKET CAP: 23.76m

SHORT %: 56.96

ATR: 1.48

AVERAGE VOL: 6.79m

I believe that if shares can base above resistance, this could turn into a significant short squeeze.

Let me explain by diving deeper into the technicals posted above:

• The float of the company is tiny. At only 2.99m, it does not take a lot of volume to get this stock moving. With an average volume of 6.79m and a float of 2.99m, the float changes hands over 2x on any given day. 
• The ATR, or Average True Range, tells me that the stock has a range. For an $8.25 stock to have a range of $1.48 is incredible. Ultimately this indicates volatility and the potential for outsized moves in the name.
• The short interest is enormous. 56.96% of the float is short! If this stock bases over resistance and pushes higher, shorts will have to cover. What happens when they cover? They create more demand, and the stock goes even higher.

In the last few weeks, shares of AHPI have consolidated between $10 and $5. Three critical levels I am now keeping in mind are:

• $5 – $5.50 area of support.
• $10 area of resistance. 
• $11.50 area of resistance.

With these levels in mind, I can already begin forming a trading plan. For example, if the stock bases near the $10 area of resistance and then holds over $10, turning it into support, I will get long and add to the position if it breaks over the next area of resistance.

Alternatively, suppose the stock bases within this consolidation and makes a higher high. In that case, I could look to buy shares against support of the consolidation ($5) and place my stop below the area at $4.99. I may take some profits off into resistance and hold a core position if we push over $11.50.

With the above levels and overall catalyst in mind, I have developed a trade plan. Often, a trade does not develop, and your plan to buy it does not materialize.

What could cause me NOT to buy this stock?

• AHPI is expected to report earnings on 8/13/2021, as per MarketBeat. If the stock is still trading in the range and reports worse than expected earnings, I will no longer buy it.
• If the stock breaks below support and holds below support, I will not get long. 
• If the overall sentiment around Masks, PPE, and Respiratory companies change, I will change my plan.

Not only is it essential to have a trading plan and to know what you want to see before initiating a position, but you should also clearly understand the risk and potential catalysts which could alter your plan.

The Bottom Line

I love the technical setup in AHPI and would look to go long if critical levels of support hold and essential resistance levels turn into support. This setup has the potential to squeeze based on the short interest and float size. With a detailed plan in place, I can now monitor price action and react if the bulls take control and my plan materializes.