New website feature: Chart of the Day—Joy Global (JOYG)

The Stock Market Cook Book’s sous chefs are in the process of redesigning and updating the website which is one reason why blogging activity has fallen off in recent weeks. But today I’ve decided to introduce a new feature called “Chart of the Day” that will appear when I find a compelling chart that illustrates aspects of technical charting, provides a clearly defined trade set-up, or better yet, both.

Today’s chart of Joy Global (JOYG), a heavy mining equipment maker based in my home state of Wisconsin, shows basic charting elements which suggest some possible trading strategies. Let’s first look at its weekly candlestick chart:

JOYG Weekly Chart 1-07-10

Just before the market crashed in 2008, the stock hit its $90 peak before tumbling 75 points. It roared out of a double bottom in the middle of March, eventually settling into a trading zone between $50 and $58 where it’s been biding its time for the past three months.

Trading Strategies
For those of you who like channeling stocks (stocks that bounce between levels of support and resistance), you could try playing this one for $5-$8 on either side.

The other strategy is much more compelling.

When, after a long period of consolidation, a stock finally breaks one of its channeling boundaries means that it will most likely continue in that direction. And the greater the volume accompanying the breakout, the more likely and more forceful will be the ensuing movement. Typically, any type of news can propel consolidating stocks out of their range–upgrades/downgrades, good/bad earnings, a change in management, a large product order, a canceled product order, stock take-over rumors, positive/negative clinical data (for drug companies), etc.

So, is there anything on the horizon likely to move JOYG? Glad you asked! The company blew away December earnings estimates and may do the same when they next report in early March. Company executives were quoted as saying they expect the order rate to be improving in 2010. But March is more than a month away—might not there be anything else in the offing?

Bucyrus (BUCY), Joy’s major competitor also based in Wisconsin, was recently upgraded to a Buy rating by Barclay’s with a price target of $73. Barclay analyst Andy Kaplowitz expects Bucy’s revenue to meet or surpass last year’s and raised estimates–just like Joy did last month. Joy sports a more than decent balance sheet (for more info see this SeekingAlpha article) and it’s certainly not a wild stretch of the imagination that it, too, could be soon upgraded.

If and when that event occurs, expect a pop over $58. But don’t rush into a long position just yet–the pop should be on heavy volume. The reason is that the “smart money” has recently been preferring Bucyrus over Joy, as evidenced by their divergent On Balance Volumes (OBV) shown in their daily charts:

JOYG Chart 1-07-10

BUCY Chart 1-7-09

What with the rising price of commodities due to global demand–especially coal which benefits both Joy and Bucyrus–it’s not hard to imagine that both stocks will significantly rise in price over the next few years. Despite the fact that domestic orders for mining products have been down recently due to economic conditions, experts are predicting an increase in the next couple of years, boding well for the industry.

To me, the higher percentage play is Joy when it breaks out. Bucyrus has already done so; now it’s Joy’s turn. So, be patient and wait for the soup to come to a boil before dipping in.

Ah…the joy of cooking!

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