Rheinmetall - Correction vs. increase in the federal budget -- This is how I position myself now

Company description

Rheinmetall is an international group, listed on the DAX, that operates in various markets and offers technologically leading products and services. The sales focus is on the security technology and mobility segments. Since February 2021, the group structure has consisted of five divisions: Beekle Systems, Weapons and Ammunition, Electronic Solutions, Sensors and Actuators, Materials and Trading. The Vehicle Systems, Weapons and Ammunition and Electronic Solutions division is one of the main suppliers to the defense and security industry for innovative products for German and international armed forces.

latest news

It was recently decided that spending in the federal budget for the Ministry of Defense should increase from the current EUR 52 billion to EUR 80 billion within three years. This means that Germany is meeting NATO's demands to invest at least 2% of GDP. Attached is a diagram of the increasing spending (source: Statista)

That would be almost double the current level. Rheinmetall is of course one of the leading companies in Europe. The group has already benefited massively from the current geopolitical events, which have been going on for several years. Many orders from many countries. Some of this could be included in the share price.

Chart technical outlook

Nevertheless, there are still trading opportunities here that I would like to take advantage of. At the moment, I really like Rheinmetall shares. And that's despite the fact that they are still in the middle of a correction after reaching an important medium-term target of around EUR 550. The correction can currently be seen within a bullish flag, a classic trend continuation formation that is likely to be resolved in the overarching trend direction.

After the share price failed to break through the trend channel limit last week, there are increasing signs that the recent upward movement must only be seen as an interim correction. This should result in new lows. I currently see an ideal price zone for an anti-cyclical entry in the area of just under EUR 442. If market participants are unable to use this, EUR 405 will most likely ensure this upward movement.

Procyclical signals only emerge above EUR 519 with the breakout from the trend continuation formation. I currently consider it more likely that the share price of Rheinmetall securities will reach a new record high in the region of EUR 676.

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