Case Study of India Banks: Chasing based on Media News vs. 360° Analysis

On the apparently fantastic news of enormous capital infusion into Public Sector Banks, on 25th Oct 2017, Indian Banks surged. The Indian government had just announced USD 32.4 Billion recapitalization plan for the banks.

Investors and rating agencies were competing with each other about how great it was for the Indian Banking Industry. Moody’s said, “INDIA’S CAPITAL INFUSION PLAN IS A SIGNIFICANT CREDIT POSITIVE FOR INDIAN PUBLIC SECTOR BANKS”. Breakingviews published an article with the headline “Investors embrace Indian bank recap on any terms”. All the news channels were subtly telling retail traders to Buy the Stocks. Banks surged.

Who was buying on the news? Many retail traders for certainty. However, not CUE 360° traders. CUE traders don’t like to chase a Market. And they would rather trust the data than to Buy on the news or others’ opinion of how great this was for the Banking Stocks in India.

Some of my friends, who are not able to get rid of their dependence on other analysts and news channel’s view on a Stock, sometimes say something like this “That news worked this time.” Or “That free Stock Tip from the brokerage/analyst on the web gave me profit”. I tend to point out that is not impossible.

When some retail traders chase the news, it is likely they are Buying at the Ask. And that in itself propels price higher. Those who are lucky to buy before others have profit. Those poor souls who Buy late end up being the losers. And I always ask them – why would you chase a Stock? Would you do that when buying anything else? Or you would wait patiently for the price to come to reasonable valuation?

They tend to agree at an intellectual level that it is better to wait for optimal Valuation. However, putting that in practice is another thing. A little bit of help from a Robust System with the backing of Reliable Data is needed for the confidence to make own decisions.

Let’s come back to the Indian Public Sector Banks. We will review several of them using CUE Charts first.

​Allahabad Bank (ALBK.NS) jumped up on the recapitalization news on 25th Oct. Where is it today? Almost back to where it started. After the initial “chasing” driven move up, it only fell. There was no rally whatsoever.

Oriental Bank Of Commerce (ORBC.NS) shows the same picture.

Andhra Bank (ADBK.NS)? Same again.

Even the largest Public Sector Bank, State Bank of India (SBI.NS) could not go up any further after the initial two days “chasing” fed rally.

CUE Traders, instead of taking Long based on news, might have followed what the Chart Signals were telling. And what CUE Charts pointed to was to keep away from Buy. What is more? There were several Swing Short Trade Setups in several of these banks, like the ones marked on Allahabad Bank Hop On Daily Chart below.

After the “chasing” driven rally, Allahabad Bank did not go up at all. Instead, it declined and declined severely. The people who bought after the news are probably still holding, saying “in the Long-Term” the Stock will go up. Meanwhile, they are stuck with a hugely losing trade and with capital locked in that.

Bearish Headwind (red diamond) could successfully predict the impending reversal and caught the very top.

The magenta color Candle marked on the chart that occurred in the Stock’s down-trend represented Optimal Swing Short opportunities. All those trades were profitable Short opportunities. And could be decided using CUE Unambiguous Checklists exactly when the magenta Candles appeared. There were three such Shorting opportunities.

As the Stock is continuing to fall as of 16th January (today), partial Short Position may still be held to let profit run. The trades could be made entirely Risk-Free by booking partial profit by now and using CUE Protection to apply Protect Profit Stop.

Similar Short Opportunities were probably there in other Public Sector Banks as well. So much for the herd mentality and following the lofty pronouncements of the rating agencies and analysts.

Now, could the Stocks go up? The certainly could. And that would have also shown up on the same CUE Charts, and we could Buy if there were Optimal Buy Points. But there were not any. Not on CUE Technical Charts.

What about the Stock’s Fundamentals? Here you could use CUE Vital. CUE Vial allows Fundamental and Peer Analysis of Global Stocks. Including India Stocks (India is within our globe!). What does the Fundamental Scorecard says about the banks that I have mentioned on this blog? Here is the snapshot of CUE Vital’s tool’s Vital Statics pane.

All the Stocks are Overvalued. The magenta color on Valuation Scores instantly shows that the Stocks are Overvalued even now. When the prices shoot up after the capitalization, they were probably worse off. Overvaluation was another warning sign for CUE 360° Traders to avoid Buying the Stocks.

What was the result of the Bank Stocks over last two months? In CUE Edge I drilled down to identify the Stocks in Banking Industry and looked at the Performance pane, as shown below.

Over last two months, ten Banks declined by more than 10%, substantial declines. How many were Public Sector Banks? Almost all of them!

India’s Banking Index Bank Nifty has under performed the Broad Market since November 2017. You could check that out instantly from the Relative Performance Indicator on CUE Charts. Overall, however, Bank Nifty did not decline much. Neither did it go up? How was that possible? That happened because, on aggregate, Non-Public Sector Banks made up for the loss of the Public Sector Banks. You could figure that out instantly from CUE Systems.

Isn’t it like a trick? Recapitalization of Public Sector Banks was supposed to lift those Stocks and sustain their rally. It did not. Instead, Private Sector Banks did better. And all that while, news media was telling you to buy Public Sector Banks, often, subtly. Through their positive coverage of the recapitalization.

CUE Traders knew better than to fall for such tricks. Instead, they used 360° Analysis to see what was going on and saved their account. They did not see any CUE Long Trade Setup on charts. They saw Short Trade Setups. And Fundamentally, they saw the Stocks were Overvalued. Not a good time to Buy.

There are many such examples where following your analysis based on Reliable Data and Robust Analytics and Charts; you could be much better off than following so-called pundit’s views.

Similar 360° Analysis of the USA and India market are regularly shared through the CUE Sight 360° Mobile App and Forum. You might check that App out for yourself on this page.

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