The most-affected were the new-economy stocks, which have lost at least 50 per cent from their highs, and though the Sensex has bottomed out and gone into a fresh intermediate uptrend, not many new-economy stocks have bottomed out. All the sectors have been affected in a bear market, while only those stocks which have a low draw down have been exhibiting a bullish relative strength, as they are moving sideways. One such sector is the paints industry, in which majority of the stocks have been exhibiting a low draw down.

In a bear market, the investors must stay with liquid cash and avoid picking bottoms. If they can trade, they must take up short positions, which are more profitable, while trading on the long side is not profitable, as the intermediate rally lasts for two to a maximum of three weeks. However, investors who would like to stay invested in the market must switch over to stocks which have a lower draw down. There is, however, no guarantee that these stocks will not break down. It is difficult to predict when a bear market will end.

Immediately, there are no signs of the bear market ending, and the current intermediate rise is a bear market rally which could last for about two weeks. Thus, the best strategy for investors is to stay away from the market for some more time till there are enough indications that the bear market has ended. If the investor is also a trader, then he must concentrate on trading the market on both the sides.

During a bear market, many stocks tumble 50 per cent or more, and by then the holder thinks that was "far enough", and so he tries the popular game of averaging down.

After all, the investor thought so since he was going to be sitting around praying that the stock he's stuck with will recover. So, he might as well double up. That way, he reasoned, the stock will only have a rally half as much before he would get out even. However, there are many practical flaws in this approach.

In the first place, professionals "average up", not down. It's when the market action starts to prove that they are right that they pile on further; not when they've been proved wrong.

Instead of sitting with a weak stock, they get out promptly. The "averager" is thrown off the track, however, by thinking of buying more precisely when he should be selling. Later, his mind can be further misguided, if and when the stock does rally a bit, because by then, he has a target price to "get out even", and if the rally does not carry that far, he grimly sticks to his mathematical desire.

Such "averaging down" can be particularly crippling if you try to fight the downtrend. Every time you have averaged in the hope of hitting the bottom, you'd simply have been adding more shares and more losses to your portfolio. The result is that one winds up throwing good money after the bad. Trying to guess the bottom in an already weak stock is like fishing in the ocean with your fingers.

One of the first things that must be learnt by an investor or a trader is knowing how to handle a losing position and to be able to act decisively in cutting losses short. Today, I will take a look at the paints sector, as the industry has the least draw down.

Asian Paints
Asian Paints has been staying above its 30 WMA, and is in a major uptrend. The relative strength line for the stock is neutral, as it has been oscillating about its trigger line and is moving sideways.

The sideways move by the stock has resulted in the stock exhibiting a lower draw down in the current bear market, and those investors who like to stay invested in a bear market must hold on to such a stock. The rate of decline is lower than the rate of decline by the Sensex and, hence, the relative strength line stays bullish or moves sideways.

Berger Paints
Many stocks in the paints sector have not been declining in the current bear market, and have been either staying sideways or have been moving up. Thus, the draw down in the sector has been the least. Investors who have been holding on to these stocks have been exhibiting a least draw down in their portfolio. Berger Paints is also in a major uptrend, as the stock has been exhibiting a bullish relative strength. The relative strength line for the stock has moved above its trigger line and, hence, it is currently bullish. However, this relative strength line has been oscillating above the trigger line, and could be termed as neutral. The stock's decline in the current bear market has been the least, and compulsive investors must switch from weak stocks to this sector.

Goodlass Nerolac
Goodlass Nerolac has dropped below the 30 WMA, and is in a major downtrend. The stock has been staying sideways recently and, thus, the relative strength line has moved closer to its trigger line; but it is still below it and, hence, the relative strength is defined as bearish. The earlier bottoms of the stock have been formed at this level, and we could again see the stock bottoming out at these levels. However, investors must stay away from the bottoming process, and get in only when the stock has bottomed out and the relative strength line for the stock has turned bullish.

Snowcem
Snowcem is in a major downtrend, and is well below its falling 30 WMA, and hence, the major trend of the stock is down. There are no immediate signs of the stock bottoming out, and investors must stay away from the stock for the time being. Also, as the stock is well below its falling 30 WMA, it will take quite a while before the major trend of the stock could turn up. The stock is currently quite weak, and investors who want to switch over to this sector must avoid this stock.