The Stock
Siemens AG (SI-N)
Recent price: $93.70 (U.S.)
The Trend
The vitality and strength of the youthful German side in the FIFA World Cup finals - vividly contrasting the sordid and deflating performances of England, France and Italy - seems a suitable reflection of the economic aplomb of Germany amid a union under stress. While the European debt crisis has highlighted the fiscal cracks within the European Union, history may yet show events conspiring in Germany's favour. Understandably, investors were quick to abandon European assets as the Greek crisis flamed, but indiscriminate selling seems now to have given away to a sense that the devaluation of the euro plays nicely into the hands of German export strengths.
The German DAX index's performance since the end of April indicates a revived confidence that many German multinational stocks had become oversold and investors are coming back to the trough. After a dramatic spring, the DAX is closing the second quarter essentially unchanged - considerably better than the double-digit percentage drops in the benchmark indexes of other major European markets. German stocks have done better than U.S. stocks, too - the 8-per-cent slip in the S&P 500 index in the second quarter shows the effect of the correction.
Of course, in U.S. dollar terms the German stock market is still suffering from a weak euro currency. The greenback has been a main beneficiary of euro weakness, but the U.S. Dollar Index now shows an abatement of its advance. In North American eyes, German stocks are starting to become more enticing. After a spike in trading volume in May, iShares MSCI Germany exchange-traded fund (EWG-N) rallied off a support level, although it remains in a Stock Trends Bearish trend. Investors who remain upbeat about global economic performance this year should anticipate a solid recovery of German blue chip industrial stocks.
The Trade
Siemens AG is regaining its bullish tack - just look at its recent relative share price performance - after faltering with the euro crisis. This leading supplier of technological products and services has a global hand in the industrial, transportation, infrastructure, energy, and health care sectors. Although categorized as Stock Trends Bullish, Siemens' shares have trended flat since rallying to a peak above $103 in October of last year, trading since in a range between that high and the $83 level. Investors can look for a retesting of resistance at $103 during the next period - an advance to new highs would be a trigger for new demand for the stock and a buy signal.
The Upside
Long term, a meaningful rally above $100 invites a new technical objective at $120, an ambitious move that would depend on the performance of global stock markets. However, in the current environment, investors should be focused on the stocks of multinational companies with considerable overseas earnings. If the market recovers from the spring correction, an advantageous currency situation makes Siemens stock a potential momentum play in the coming months.
The Downside
Stock pickers could be whistling in the wind of a mighty downdraft if the trend distribution of stocks continues to turn sour. The ratio of Stock Trends Bullish to Bearish still holds in the bullish favour - for now. If the broad market turns even more unfriendly, Siemens could easily head back to the low end of its trading range near $83. Drops below $80 would put an end to this trade.