2 Solid Picks for a Weak Euro

09/15/2014 10:30 am EST

Focus: GLOBAL

Thomas Aspray

, Professional Trader & Analyst

A weaker euro will create profit opportunities in the coming months and likely stop the recent slide in some Eurozone economies, so MoneyShow's Tom Aspray takes to the charts to see if these foreign healthcare companies are likely to benefit due to their overseas business.

The disappointing news on Chinese industrial production has added to the selling pressure in the Eurozone after Friday's weak US close. The US futures were lower in early trading but are trading above the early lows.

The technical outlook in Friday's Week Ahead column presented the view that further market weakness early in the week should create a short-term oversold condition that will lead to a rebound if not a resumption of the market's uptrend.

The markets are nervous ahead of this week's FOMC meeting as many are expecting a subtle change in their policy on rates. This could be a sell the rumor and buy the news situation so Wednesday's afternoon trading should be quite interesting.

The recent drop in the euro has gotten the market's attention but, as I have noted, the bearish sentiment has reached extreme levels. The December Euro FX futures have reached monthly projected pivot support at 1.2938 and show some signs of bottoming. This makes a rebound likely but it is likely to be a pause in the currency's downtrend.

A weaker euro will create some profit opportunities in the coming months and will likely stop the recent slide in their economies. These two Eurozone healthcare companies, because of their overseas business, are likely to benefit from a weaker euro.

chart
Click to Enlarge

Chart Analysis: The weekly chart of the German DAX Index shows that the recent rally has taken the average above its quarterly pivot (QP) at 9683.

  • The monthly projected pivot resistance at 9746 was just exceeded.
  • There is stronger resistance in the 9850-10,000 area.
  • Based on current data, the 4th quarter pivot and the 20-week EMA are now at 9528.
  • There is a band of stronger support in the 9250-9350 area.
  • The 4th quarter projected pivot support is at 9025.
  • The seasonal analysis shows that the DAX typically bottoms in three weeks on October 3.
  • The daily studies like the MACD are still positive but declining.

The SPDR Euro Stoxx 50 (FEZ) is made up of the 50 largest Eurozone companies. It has an expense ratio of 0.29% with a current yield of 3.17%. They have 36% holdings in French companies with 31.4% in Germany.

  • The top ten holdings make 39.8% of the ETF with the largest holdings in Total SA (TOT) and Sanofi-Aventis SA (SNY).
  • FEX has rallied 4.6% from the August low of $39.14.
  • The 3rd quarterly pivot is at $42.78, which represents more important resistance.
  • The 20-day EMA is now being tested with trendline support (line b) at $39.50.
  • The relative performance broke in early July, two weeks after FEZ made its high.
  • The RS line is still well below its WMA, consistent with a stock that is weaker than the S&P 500.
  • The weekly OBV has just rallied back to its downtrend, line d, and closed barely back below its WMA on Friday.
  • The daily OBV and RS analysis does look more positive.
  • The OBV has major support now at line e.
  • A daily close back above $42 would be a short-term positive.

NEXT PAGE: 2 More Healthcare Stocks to Watch

|pagebreak|

chart
Click to Enlarge

Fresenius Medical Care (FMS) is a $19.5 billion German-based kidney dialysis company that is one of Morgan Stanley's basket of stocks, whose earnings could rise 3-4% with every 10% decline in the euro.

  • They reportedly receive 63% of the revenue from non-developed Eurozone sources.
  • FMS is up 9.69% over the past three months but down 0.6% YTD.
  • The chart shows that the quarterly pivot at $33.43 was tested in early August.
  • The quarterly projected pivot resistance at $35.57 was tested last week.
  • There is next resistance from early 2014 in the $36.39-$36.62 area.
  • The weekly relative performance moved above its WMA in early August.
  • A move in the RS line above the downtrend, line a, would be a positive sign.
  • The weekly OBV  was able to move above its WMA in early August.
  • It is now well above its WMA but still below the highs from early in the year.
  • There is first support in the $34.41-$34.56 area with the rising 20-week EMA at $34.16.
  • For the 4th quarter, the preliminary projected pivot support is at $33.64.

Sanofi-Aventis SA (SNY) is a $148 billion French-based multi-faceted healthcare company. It has recorded an 8.78% YTD gain and has been up sharply in the past month.

  • The major resistance for SNY, line c, was overcome three weeks ago.
  • The weekly starc+ band is at $57.23.
  • The completion of the trading range, which goes back to mid-2013, has upside targets in the $62-$64 area.
  • The weekly downtrend in the relative performance, line e, was decisively broken in early September signaling it was outperforming the S&P 500.
  • The weekly OBV made new highs for the year in the middle of August as resistance at line f was overcome.
  • The OBV shows a solid uptrend, line g, and is well above its WMA.
  • The preliminary 4th quarter pivot is at $54.55, which is just below the breakout level.
  • The EMA Osc based on the 20-day EMA is at 2.86% so SNY is high risk at current levels.
  • There is more important support at the 20-week EMA which is now $53.01.

What it Means: Both the DAX Index and the SPDR Euro Stoxx 50 (FEZ) both look vulnerable to a pullback, which is not surprising given the debate over the ECB's stimulus plan. I would expect both to hold above the August lows. I will be looking for a good entry point in FEZ.

I think that the Eurozone economies and some companies in particular, will benefit from a weaker euro. Both of these stocks are too far above a reasonable stop level and will need a correction to reach my recommended buy levels.

How to Profit: For Fresenius Medical Care (FMS) go 50% long at $34.33 and 50% at $33.77 with a stop at $32.92 (risk of approx. 3.3%).

For Sanofi-Aventis SA (SNY) go 50% long at $54.76 and 50% at $53.46 with a stop at $51.86 (risk of approx. 4.2%).

On September 23, I will be doing a Webinar on FX trading techniques and if would like to join me, sign up here.

Related Articles on GLOBAL