Yesterday was another sour day on Wall Street, as investors ignored the Fed's $85 billion bailout of AIG and worried who might be the next shoe to drop. I certainly have to agree that the last few minutes of trading were ugly, with the stock market closing just about flat on its bottom. But -- yes, there's an encouraging but!

As bad as yesterday's session was, it brought us much closer to a resolution of the market's problems. Finally, we're starting to get the kind of technical readings that could help put in a solid bottom, possibly by the end of this month or sometime during the first half of October.

On the sentiment front, the CBOE Volatility Index, which I discussed in a Special Alert I sent to my Profitable Investing subscribers on Monday, skyrocketed to 36, its highest close since March 2003, when the first bull market of the new millennium lifted off. That's a sign of pervasive, palpable fear. From a contrarian point of view, fear is necessary ingredient in all major market bottoms.

Likewise, some of my gauges of 10-day market breadth and volume are pointing to the likelihood of an initial, tentative bottom soon. Mr. Market will no doubt "test" this bottom a couple of times in the weeks ahead, but at least the process is now unfolding as history tells us it should.

What to do now? Ramp up your buying.

I can't sign off without a comment on American International Group (NYSE: AIG). The federal "line of credit" is better than bankruptcy -- it preserves at least a tiny bit of value for shareholders. However, the central fact of the deal is that the federal government now owns 80% (79.9% to be exact) of the company.

Thanks to Uncle Sam's lifeline, AIG will almost certainly survive in some form. Even if the business recovers completely, though, the dilution will hold back any appreciation in the shares. I estimate that, at best, AIG stock will trade in the $10-$14 range five years from now.

For most investors holding the stock in a taxable account, it makes more sense to sell now and capture the loss.

OK, give them a star on the forehead for trying. The bulls managed to rally stocks Monday on word that the federal government had seized Fannie Mae and Freddie Mac.

But investors woke up yesterday with second thoughts -- and the selling promptly resumed, with a vengeance. At the close, the Dow was off 280 points, while NASDAQ and the S&P 500 registered even bigger percentage losses.

What's the matter here? I guess you could come up with any number of explanations, but I'll keep it simple. Too many people are too eager to assume that "this latest bailout will do the trick."

You would think they might have learned a lesson from the failed rallies that followed the August and November 2007 market bottoms. Or from the fakeout bounces that succeeded the January and March 2008 lows.

But no. As soon as the Treasury announced July 16 that it was standing behind Fannie and Freddie's debt, folks jumped to the conclusion that the bear market was over.

In his nasty, sadistic way, Mr. Market is now punishing those investors who insisted on buying too soon, against the evidence.

As a result, we're rapidly closing in on a full-fledged "test" of the July index lows. If we're lucky, the Dow and the S&P will undercut their July intraday benchmarks by only a couple of percentage points. However, I'm not going to predict the bottom; I'll let my indicators tell us when it's in sight.

I don't want to leave you with the idea that I'm unremittingly gloomy on the stock market. I'm finding some excellent values these days that I think my Profitable Investing subscribers will enjoy. I'm confident we'll get through this rough patch. Patience will pay!

Stocks put on a third good bounce in a row today. Hey, I'm not the kind of guy to whine about a 213-point jump in the Dow! But the question is: What do you do with days like this?

I spent most of the session on the sell side, lightening up on stocks and funds that have exhausted most of their near-term potential.

I advise you to do some trimming yourself before market's latest burst of strength fades. From a technical standpoint, today's session continued the "nice, but" pattern we've seen so many times over the past six weeks. Upside volume came in a bit stronger than yesterday, but again lacked the explosive punch that could kill the bear, once and for all.

So it's on to September. Odds are, after some seasonal strength around the turn of the month, the market will head back down to probe its July lows in the 1200 to 1215 zone, basis the S&P 500 index. I'll keep you posted as the events unfold...

Enjoy the long weekend!

The clock is running out on the stock market's rally off the July lows. If you're sitting on stocks or funds that have given you trouble, now is the time to take your lumps and move on.

Sounds pretty dire, doesn't it? Not really. I've suggested to my subscribers for the past couple of weeks that the market will probably need to drop back to the vicinity of its July lows (1214 on the Standard & Poor's 500, closing basis) before we can get a durable recovery.

If we're lucky, the blue chip indexes won't undercut their July lows by more than a couple of percentage points. Then we can enjoy a solid fourth-quarter rebound that might well carry into the opening months of the New Year -- assuming Barack Obama continues to backpedal on his proposed tax hikes (or John McCain wins the election!).

But we mustn't run ahead of ourselves. Before a new bull market can begin, we have to get rid of the old bear. And technically, it will be almost impossible to kill the bear without at least one last stab at the lows by the major stock indexes.

By dumping some of your troubled equities now, you'll build a cash hoard to go shopping with a few weeks from now -- at lower prices. This is simply good money management: Buy the dips, sell the rallies.

What should you sell? A useful rule of thumb may be to look at the stock's July 23 and July 30 peaks. If the share price hasn't exceeded both of those peaks during August, it's a sign that buy-side interest is waning. Exit now and live to fight another day!