Siemens Stock

Siemens Stock Chart
I had a request to look at Siemens stock for a long entry.  Here is what I notice...

Siemens stock price currently is flirting with a very strong support zone in the $80-$85 area.  On the surface this gives the stock a low risk high reward buying opportunity.  Major recent support is at the $83 and $82 levels and 2 year support is in the $78-$80 zone (primarily 2010's consolidation period).  All of this makes for an excellent stop loss position at only $2-$7 below the current price levels.  $82-$83 should be used for aggressive and shorter term traders and $78 stops should be used for the longer term investors.

From a general trading perspective, the profit target of a trade should generally be at least 3x the stop loss level, so at a minimum we would want a $6-$21 profit target.  This seems doable given the previous price highs and thus resistance levels ( @ $108 and $105).  The 3x profit/loss rule helps overcome the inevitability of not always being right about a trade.  With a supposed 50% hit ratio, a 3x profit/loss requirement keeps a trader profitable.

More conservative traders would want to wait for, at a minimum, the downsloping red trendline to be broken by price before entering the trade (currently at $87 and falling).  However, as long as stops are used a portion of total capital could be deployed currently.  Positive divergences and the oversold RSI reading currently help the bull case as well.

Having said all of this, sticking to the stops is very important on this stock.  The reason is the huge potential head and shoulders pattern that could be forming with the 2010 churn the left shoulder, the head in 2011, and now forming the right shoulder with the slighly up sloping neckline currently at $82 and/or having already broken down.  Any break below $78 would seriously put this chart at risk.  A break below $78 would also likely imply that European markets are breaking down hard as well.  If price breaks below that level, look out below!

If the bullish scenario plays out, we can use trendlines (just as we are using the red lines now) to help decide when to take profits as well.  We should be able to connect the higher lows to help watch momentum on the upside and decide appropriate times to take profits.

Good Luck!