Bringing Some 'Joy' to Your Trading

Joy Global Inc (NYSE: JOY) presents a great swing-trading opportunity to the long side.

The construction machinery and heavy trucks company has developed a nice flag pattern through the month of June, and looks poised for a run higher from current prices.

JOY has been engaged in a solid if somewhat choppy up-trending channel, dating back to June of 2013. While the stock is not explosive by any means, its intermediate-term trend is clearly positive and it has considerable longer-term upside from a weekly perspective.

This year, JOY has been through a few significant consolidation periods. This makes the stock a relatively safer play. as there is no momentum trade or overzealous algorithmic trading activity at work (see: selloff in SOCL this week... again...), which is nice given the up-tick in volatility this week.

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The biggest draw to JOY for the moment is the clear flag pattern that has been developing throughout the month of June and into early July. Following a positive Q2 earnings announcement on June 5th, which saw the stock jump from $58 to nearly $62, Bank of America followed through on June 6th with an upgrade to "buy" (target $70), sending JOY even higher over the next two sessions.

This explosive string of sessions created the flag pole of the pattern. Once the dust had settled, JOY pulled back and consolidated the move on very little news, showing that traders were willing to test and confirm prices in the low- to mid-$60's. The bottom of the flag formation is just above $60, which is also conveniently at the 50-day moving average.

At current prices JOY is at a relatively favorable entry point towards the bottom of the formation. This presents us with a high upside/low downside trade set-up, as the next stop higher is a ways away, and the stop here is particularly tight if JOY is going to hold the flag formation.

Looking at the chart, $64 looks like a good target area for JOY to revisit should the flag formation pan out the way we're hoping. From current prices, this would net a gain of +5.96%. The downside risk here is only -0.52% with a stop at $60.08. Thus, the reward to risk ratio of this trade set-up is very high.

Disclosure: At the time of publication the editor and affiliated companies own the following positions: None

Note: Positions may be bought or sold while this publication is in circulation without notice.