Short Attack in Stock Market
- Yash Mehta
- Oct 31, 2021
- 4 min read
IRCTC, Adani Group, Asian Paints, Infosys what was common in all these stocks?
IRCTC was a recent example where price got hammered on 29th October 2021 and price was down by 25% and later price had recovered.
Have you ever noticed few stocks that were going up and suddenly post market hours one bad/negative news come and next day stock price crashes. Sometimes this news comes during market hour as well - this is different from quarterly/annually result. News is generally some allegation, operational issue, promoters issues or anything. After price is crashed, stocks again go up within few days or intraday. This is a planned bear attack on stock price and in today's blog, we will discuss one of the dark secrets of Equity Market: Short Attack. This blog will be different since nobody talk about this and we would share recent case study with all the events, price behavior and how to use this as an opportunity.
Why Short Attack Happens in the market?
The main reason for this is price is too high and some big players didn't get entry in the stock or wanted to buy more at lower levels. So they try to spread negative news through news channel, social media, WhatsApp or telegram group, Twitter, YouTube video. Once news is out in the public domain, these paid channels try to amplify it and show negative picture about the stock as if the stock price will go to 0 now in few days. On the next day the stock price crashes 10/20% or even more.
Retail traders or investors who are in fear sell their shares and start dumping it during opening to avoid nightmare which push the price downwards, but the big players who wanted to buy the stocks start buying. Finally, their job is done and then all the negative news is forgotten by the retailers who sold their shares, thinking as if they have protected their capital. Nobody talks about the news after that date and stock again starts it upward journey.
Some misconception one would think that all the bad news are short attack in the stock. This is not true. I would say all short attack is because of bad news. That means when price of YesBank, PCJ, Vakrangee started falling bad news was there but there is something that makes this case different.
We will discuss how to identify cases of short attack because of bad news.
Let's see some live cases of short attack:
IRCTC
On 28th October 2021, after market hours news was out that IRCTC would have to share 50% of the convenience fee with the government. Price hits three lower circuits and stock had crashed.
During market hours, at 10:25am the decision by the government on convenience fees sharing was withdrawn. Stock rallied by 40% from the low.
Doesn't it look like a planned hammering of the stock price of a good company?
Retailers or weak investors who were thinking price would crash more would have offloaded their shares when IRCTC hit third lower circuit. But some smart people would have bought the shares as well from weak players and now the smart people would be sitting on profit of 20-30% in just one day.
I had bought some shares of IRCTC when it hit second lower circuit and shared it on Twitter as well.
Rationale behind buying was:
50% of convenience fees need to be shared and not the entire fees.
IRCTC won't shut down because of this. It has a monopoly in the industry.
Before this news was out, the share of IRCTC crashed from 1200 to 800 (33% correction).
How can price of IRCTC starts crashing two weeks before such news is out?
Think positively and think of opportunities during a crash.
Think as a contrarian. If all retailers start doing same thing and 95% of the retailers are not successful, then how one should think differently and rationally.
IRCTC news was not like Yes Bank, DHFL, PCJ, Gitanjali news where there was corporate governance issue. It was related to operations of the company which could have short term impact on revenues and on share price.
Asian Paints
Price had corrected by 20% before whistle blower allegation news was out.
Asian Paints promoters gave clarification on next day and price created bottom on 25th October 2021 and then rallied almost 10% in a week.
On 24th Oct, after analysing charts of Asian Paints, I was bullish on Asian Paints even if price crashes as price was trading near support. This trade was shared on Twitter.
This could have been corporate governance issue if the company didn't give clarification immediately and price continues to go down just like DHFL and Yes Bank.
Rationale for this was:
Such Whistle-blower news was seen in many good companies where price was hammered and then retailers exit from the company.
Asian Paints is a fundamentally good company and operating in paint business for 70 years.
Charts and Technical analysis is important as it is the leading indicator and not the news which comes to the retailers at the end.
Some important note: If anyone is buying stock based on short attack, then one should keep stoploss for that trade as well. Stoploss would be the candle's low when price had crashed/corrected. If price breaks the low and closes below the low then possibly there is a serious problem in the company.
As seen in DHFL example, price closed below the candle's low and price started crashing more and now the share got delisted.
In trading, protecting the capital is very important and taking a contrarian trade is risky. So think rationally and keep tight stoploss. Exit immediately if trade goes wrong and don't regret.
This is all about the Short Attack case studies in Indian Equity Market. If you have any example that you have noticed then do mention it in the comment section. Everything that I had shared is based on my personal experience. If you have any other view or if I am wrong in some point then please correct us by giviing your valuable insights in the comment.
Thank You Friends for giving your precious time to read this blog.
If you find this blog interesting, then do like and share with others too and let's create value for others too so that retailers don't become a victim of smart move called Short Attack.
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