The Best Trade May Be No Trade In Yes Bank

First, let's start with a daily chart of Yes Bank. Yesterday, prices broke down out of a 5-month consolidation period to fresh lows and met its downside price objective nearly to the penny. By using the 161.8% Fibonacci Extension of the stock's October-November counter-trend rally, we came to a 5.89 target, which prices briefly undercut and quickly reversed from.

Now, prices are in the middle of a massive range with overhead resistance at 29-32 and support back near the lows of 5.89. If you're an intraday/short-term trader you can have a blast with the volatility in the near-term, but for our timeframe there only way to manage risk appropriately is by selling strength towards the top of the range and buying weakness towards the bottom of it.

Click on chart to enlarge view.

If we take a step back, the structural picture suggests this week's action, although historic in terms of volatility, is a feature, not a bug of the stock's underlying trend. The fact of the matter is that the stock is, and has been for over 1.5-years, in a downtrend...and major volatility events like this are not typically found in stocks that are in uptrends. Quite the opposite in fact.

With that being said, there has been a ton of money to be made on the short side since the stock confirmed a breakdown in August 2018...but the reward/risk is no longer skewed in favor of the bears at current levels. Our longer-term target has been the post-ipo lows a near 11, and we've met that now. Time to take profits on shorts and see how prices react to this newly developed, but still massive range of 11.00-50.00.

Given the massive price range between clear support/resistance on both the daily and weekly chart, the best trade in Yes Bank may be no trade in Yes Bank. With volatility remaining heightened and prices driven by headlines, rumors, etc. in the near-term, we have to remember that our number one job as market participants is capital preservation, both physical and mental.

If you don't have any chips, you can't bet. And if your mental capital is exhausted you cannot operate at your best and make good decisions.

Situations like the ones surrounding Yes Bank are those where most people end up exhausting both of them by focusing on how much money they can potentially make, as opposed to how much they can potentially lose.

So if there's no trade in Yes Bank, where is there a trade?

State Bank of India has held up better than many other names in the Nifty PSU Bank Index, but it's been a sell since prices confirmed a failed breakout above 350 last July. As of today, we have two options.

First, we can fade strength up towards 350 and trade the current 233-350 range. Or second, we can let prices meet our first downside target of 233, consolidate, and then short a break of that level with a target near 146.

The second way we can take advantage of the current situation in Yes Bank is buy using the overhang it's having on the Banking sector and the broader market's weakness as an opportunity to buy the Bank stocks that are holding up extremely well in this environment.

A great example of this is Kotak Mahindra Bank, which continues to correct through time above 1,540 while many other stocks correct through price. It's also noteworthy that momentum has not gotten oversold either, signaling that buyers remain in control.

Given that the Nifty 500 and other major indices in India are down near the bottom of their 2-year ranges, we want to be putting money to work on the long side as we outlined earlier in the week. Names like Kotak Mahindra that have shown relative strength throughout the last few months are at the top of our list.

To conclude, the best trade for most market participants in Yes Bank is likely no trade. This volatility can and will destroy your physical/mental capital if you allow it to, but if you need to trade it then we'd use the top and bottom of the ranges discussed on the daily and weekly charts above to initiate positions. There's little opportunity for our particular timeframe and strategy when we're in the middle of this massive range.

For now, we'd rather focus on names like Kotak Mahindra Bank that have withstood the market and banking sector's volatility and are offering an attractive reward/risk opportunity on the long side.

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Thanks for reading and let us know if you have any questions!

Allstarcharts Team