People have been investing in Yes Bank all through its decline. I had recently done an article on our slack group – “Traders Central” the changing shareholding pattern of the stock last week. Everyone has got stuck as the prices have continued to drop.
Long term bottom formation is a multi-step process. In this, the stock undergoes at least 3-4 drives to new lows before it finishes the decline. In between these drives, there is a false rally that gets people caught in a value trap. In Yes Bank that happened with the rally of April 2019 to near 265. From there the stock collapsed to 30 levels by Oct 2019, creating the final bottom.
So, is it time to start looking at Yes Bank as an investment candidate? One may not expect anything substantial in terms of price gains immediately but if one buys into it during declines, there could be a series of upside thrusts that might prove profitable.
The weakness was evident on the charts last week
News flow has remained bearish on Yes and has totally eroded the brief rally that we got earlier (also on some positive news). So it is clear that the stock’s trends are being rocked by news flow. This makes it difficult to read as volatility has increased.
In an earlier post (Nov 21st) I had indicated that those interested to invest in the stock should look at a price level of 55-47. The final support zone maybe 42 levels. But if below 50 zones, recovery may prove to be difficult.
Prices have now come down to 50 levels and the news flow continues to be negative with the Bank saying that they may reject the offer from a dubious Canadian investor. The bank is in desperate need of capital raising. So matters are dicey right now.
One most note that Investing in stocks like these has to be necessarily long term and that returns (if at all there is any) will most likely be back-ended rather than front-ended. Since most institutions have exited the retail participation is become very high leading it susceptible to wild trading swings. So the technical factors are of utmost importance before deciding to dabble with stocks like YES Bank.
What is the near term picture?
Using the stock analyzer function in NeoTrader we look at what the Momentum and Trend Indicators for Yes Bank is Telling us. We can clearly see that all the momentum indicators are tilted towards the red indicating the moment is on the downside and the reversal trend exhaustion score is at Neutral that indicates that the trend – which in this case is negative and towards the downside is still active.
What actions should investors take?
Now, this brings up some points that can guide us to what to expect from Yes Bank ahead. No doubt the bad results etc. are now factored into the price with the decline to 30 levels. The strong rally to 75 areas since clearly shows that the market is looking ahead for some stake sale, new owners, etc. The rise from the lows was swift because most people who bought in that area were not really looking for some quick turnover and hence supply was limited. Also, skepticism was high and hence the swift price move is probably signaling some smart money activity. Rakesh J also weighed in with a well-advertised long position recently!
In our previous article which was published in our Traders Central – we noted that it trades into the 75-85 zones, it is possible that some of the earlier institutional purchasers (and those who bought along with them) may consider bailing out as they have seen their investment halve first! So, supply is likely to increase as we move ahead past 75 levels and that is how it has exactly played out.
We highlighted to our readers in last week’s note that
“fast-paced advance of Yes Bank is almost coming to an end now and once it enters the higher supply zone beginning from around 75, the pace will drop considerably. That usually manifests as a frequently retraced, consolidation type movement.” – THE STOCK DID EXACTLY THIS!
So we are providing a more detailed strategy on how to play this stock. This action plan is best suited for Traders – long term investors should be shying away from this stock and rather look at better run fundamentally strong companies.
What we Recommended 2 weeks back!
We advised to let go of pending longs at 75 levels – and that proved to be a valuable piece of advice as that is where the stock topped out.
How Can you profit right now?
- The support zone given was 55 thru 47. It broke 55 in the morning and that fact was highlighted. The pressure continues on the stock and its now down to the lower band of 47.
- The board meeting relating to the fundraising is going on as of now. Can more bad news of the same nature continue to drive the prices lower? There is a final support zone at 42. Now, that is a 5 point risk if you buy here and try to add at the lower level too.
- Worth running a risk? Up to the individual traders. Look at it this way. Most people were unafraid of buying at 250/150/75. So why should one be scared of buying when we find that it is in a buying range?
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