• Large-scale pessimism.
  
• Reduced popularity of stocks, as measured by a decline in the percentage of stocks on the New York Stock Exchange trading above their 200-day moving average.
  
• Sideways trading in the market for at least two or three months.
  
• Resiliency in the face of negative news.

To be sure, not all of the above criteria have been met at this point, especially the market's willingness to hold up during negative news.

Nevertheless, it is beginning to feel like the sort of environment from which rallies emerge, if only for the massive amounts of pessimism out there and the willingness of investors to dump stocks now simply because "they can't take it any longer." That's the type of panic that often accompanies at least intermediate-term bottoms.

What should an investor do? The one thing an investor shouldn't do is dump stocks out of fear. Rather, go back and review your asset allocation relative to your investment time horizon. The next step is to review your stocks. If you want to raise cash, sell your most questionable holdings first.

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