To use your watch as a compass, hold it horizontally, place a match upright on the rim of the crystal, nearest the point of the hour-hand. Then turn the watch until the shadow of the match falls directly over the hour hand. In that position, South is exactly midway between that point and the numeral 12.
Q & A from American Time, Nov/Dec 2000 issue
However, this technique works properly only with standard time, not daylight time. If it's summer (when most people hike) and your watch is showing Daylight time, you must place the match on the location 1 HOUR EARLIER than that indicated by the watch's hour hand. The technique described then works properly.
However it works only in the northern hemisphere.
Also, a lost hiker would be in trouble in the Tropics or at least within +/- 10 degrees from the Equator, because in those latitudes, the arc traversed by the Sun is too high in the sky to give you a good sense of direction.