THE YES BANK CRISIS: HOW PRICE ACTION WOULD HAVE SAVED RETAILERS?

On Dalal Street, there have been wealth creators and the Wealth Destroyers as well. And we don’t want you to think that it’s merely bad luck or good luck charm when you get your hands on either one of them. One of the predominant wealth destroyers was Yes Bank. People kept buying the share, once it was at 350 (down from 400), then at 250 (after significant correction). Hell, people brought Yes Bank even at 80 levels. Today, it’s trading in the ₹12-₹20 range. Do you also know someone who has burnt their fingers with this share? If yes, then it’s time for them to read this blog and understand how we, as retail investors, could’ve been saved at the earliest, with minimized loss. 

The Saga Begins 

The early birds of the market already know that Yes Bank was the one to revolutionize Internet Banking in India. Once at the helm of private banking, Yes Bank was listed across exchanges on July 12, 2005, at ₹13/- per share. Over the years, it compounded the investors’ wealth proficiently, so much so that it hit the all-time high in August 2018, i.e. ₹418/-. Now one might think, what a compounder it had been, it inflated the wealth by more than 2000%, that is something serious. Well, it’s not that cool, and we’ll tell you why.  

Scary September 2018 – Halloween Comes Early 

The masses follow the news, but if you follow technicals, you need not follow any news. More importantly, traders can become profitable and refrain from making losses if they follow simple price action rules. After all, it’s true what they say – buy the rumor, and sell the news. 

After the distribution phase at sub-high levels of 350-300, the share started its downtrend journey. People were thinking to accumulate it at dips, but what happened was enough price action to alert all the market participants of this horrible crash that was yet to come. 

On September 21, the Yes Bank shares gapped down and closed the day in deep red, down 30% from the previous day close. 

There was a sell-off of more than 290 million shares in the open market that very day. It clearly shows that big Institutions(FII – DII), Mutual funds, Investors are selling Yes Bank at Market price. They are so desperate to Exit yes bank that they are ready to exit at lower prices. The news later rolled out about Yes Bank that how the tussle between Madhu Kapur & Rana had got the Bank to choose between a rock and a hard place. In the following week, the stock was down almost 40%.

With the gap down opening, followed by heavy sales of 250+ million shares (considerably one of the highest volume candles in the daily chart), investors and traders could’ve gotten away with minimum losses even before the news hit the D-street.  The price kept on going down in next coming month and went below 100 in July. 2019 and went below 10 on 6th March 2020. 

2020 March Mayhem 

“Fool me once, shame on you. Fool me twice; shame on me.” 

Like the first signal was still invisible to the retailers, the market also tried to give another signal in March 2020, when promoters sold all their stake in the Bank, resulting in a fall of more than 50% in just a day. 

Again, the operator-driven news of RBI’s rescue policy for Yes Bank and State Bank of India coming in to save it from crisis came in, and the shares significantly shot up. Made a high of  87.30. And guess what, RANA KAPUR sold all his remaining shares in this spike. Madhu Kapur sells 2.5 crore shares of YES Bank. When the guy who knows the best about Yes Bank fundamentals is exiting the same company he created, what makes you think that it is a good opportunity to buy!!!

Yet again, retailers were taking delivery of the shares, and all their portfolios were nicely hammered. To date, the Yes Bank shares are struggling to cross the ₹20/- mark on the daily chart. 

Lessons Worth Learning 

Here are some lessons that we should try to learn from the Yes Bank Crisis:

—   When the share had felt by more than 30% in a single day with high volume, that means big players are exiting and we should avoid investing in such stocks.

—   Always take the news in the market as a pinch of salt in food. Please do not make the news a loaded feast because it’s never good to feast upon…!!

—   Market participants should try to learn Price Action, which will help them understand the authentic voice of Mr. Market (Smart Money). Every time Yes Bank was falling apart, it broke its major supports — may that be trendlines, Fibonacci Levels, technicals, or psychological levels. It isn’t justified to buy a stock when it breaks its primary support levels with solid bearish patterns.

—   Investors should be in full touch with the promoters’ attitude. If the promoter himself is exiting the company, it is a clear sign that company null.

Breakdown & Value Buy: Spotting Differences

Now some of you might think that corrections may or may not be an opportunity to buy blue-chip companies at a slashed price. Well, most of the time, they are, but sometimes investors do burn their fingers with the likes of DHFL and Yes Bank. Here’s an incident from mid-April:

On a bad day, significant indices like Nifty 50, Bank Nifty, and Sensex were down from 1.5% to 3%, and Bajaj Finance was down almost 10%. At the end of April, Bajaj Finance was trading almost 20% up from those levels. So that was a clear-cut value buying opportunity. But how does it become different from the Yes Bank case? Here’s why:

—   Fundamentals of Bajaj Finance are Rock Solid, way better than that of Yes Bank.

—   The fall was followed up by strong ‘value-buying as seen on charts.

—   On the same day, when it was nearing 10% lower circuit, intraday, the stock closed just 6% down from the previous day close.

Like Mr. Buffet says – “Be fearful when others are greedy, be greedy when others are fearful,” had someone brought Bajaj Finance at those levels, after ten days or so, they’d be sitting on 20% plus profits. 

Conclusion

If you have followed Price action, then you would have avoided this and saved yourself from destroying your wealth. On top of that If you have proper price action skills and strategies you would have known earlier than others and could have made fortune by short-selling it.

To learn how to trade Consistently, do check our mentorship program through the below link:

https://tradingcafeindia.com/mentorship

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