Many investors have a habit to average down in your buying, rather than up. If you buy a stock at Rs 50 and then buy more at Rs 30 and average out your cost at Rs 40, you are following up your losses and mistakes by putting good money after bad. This amateur strategy can produce serious losses and weigh you down with a few biglosers.

Public loves to buy cheap stocks at low prices. It usually costs more in commissions and markups to buy low-priced stocks, and your risk is greater, since cheap stock can drop 15 to 20 per cent faster than most higher priced stocks. Professionals and institutions will not normally buy low-priced cheap-quality securities.

A first-time investor or trader wants to make a killing in the market. They want too much, too fast, without doing the necessary study and preparation or acquiring the essential methods and skills. They are looking for an easy way to make a quick buck without spending any time or effort really learning what they are doing.

I usually follow the top-down approach for investments. I first look at the market on the whole and then the sector and group and then pick up the best stocks within the sector. Today I will take a look at the refinery sector where a few stocks have bottomed out and provide some opportunity.

At present, the mini bull market is already seven months old. Thepharma sector, which had led the rise, has taken a back seat and many stocks in this sector have already dropped below their earlier intermediate tops suggesting that we could be closer to a major top.

The cyclical which had not moved till the past few months has been in the limelight and the activity in the cash group stocks is very thin. This suggest that we could be closer to a major top. The weekly momentum indicators for the indices are overextended and could soon signal a sell. However taking certain precautions we can trade for the rest of the bull run in a few sectors which are likely to rise.

Bharat Petroleum

Bharat Petroleum went into a major uptrend in May 1999, as the stock moved above its earlier intermediate top and its 30 WMA. However, the relative strength line for the stock is still below its zero line which means that it has been under performing the indices. This is despite the fact that the stock is in a major uptrend, all long positions taken up in May must be with a tradingpoint of view. The relative strength line has been moving up, but as it is below its zero line, the stock will face selling pressure at higher levels and the next intermediate rise in the stock will be the right time to book profits and get out.

At present, the stock has been trading above rising 30WMA and a breakout from the sideways move will give a good opportunities to traders to trade on the long side.

Hindustan Petroleum

Hindustan Petroleum also went into a major uptrend in mid-May and is trading above its rising 30 WMA. The stock has also been consolidating above this long-term moving average and is likely to exhibit higher levels in the next intermediate rise. However the relative strength line which is rising is still below its zero line which means that the stock is under performing the indices and the next intermediate rise will be the right time to book profits and liquidate the stock. Thus, investors must not only look at the major trend but must also look at how the stock isperforming. The performance comparison table focuses on the performance of the stocks in the sector along with the Sensex for the past 20, 50, 100, 150 and 200 days.

Reliance Petroleum

Reliance Petroleum is the only stock in this sector whose relative strength is above zero which means that the stock is outperforming the Sensex. The major trend of the stock is up and investors must hold on. The stock recently made a 52-week new high and is likely to move higher in the current intermediate uptrend. As the relative strength line for the stock is rising, higher levels will be seen in the stock. However, the trading volume has been on the decline in the current intermediate rise which is a bearish sign and the volume must improve immediately if the stock has to exhibit higher levels.

MRPL

Though MRPL is in a major uptrend, the relative strength line is still below its zero line and this means that the stock is under performing the indices. The stock has been in a severe major downtrend andhigher levels will receive a strong selling pressure and this could abruptly terminate its major uptrend. As the relative strength is below the zero line and the major trend is up, any fresh intermediate uptrend will be only for traders. Investors must keep away from the stock.

Madras Refinery

Like the other stocks in the sector, Madras Refinery is also in a major uptrend as the stock has moved past its earlier intermediate top and has been trading above its rising 30 WMA. However the relative strength which has now been moving up, has been staying below its zero line. This is due to the strong decline in the last major downtrend. Thus, any fresh intermediate uptrend after a correction in the stock will only be a short-term trading activity. Investors must keep away from the stock.