Last week, the Dow Jones Industrials signaled the official start of a bear market by crossing the 20% down marker from peak to trough.

No surprise there. If you have been watching the stock market, you know that its been bearish since the end of last year.  There’s really no need for the actual result of down 20% to tell us to avoid stocks.

But will this crossing of a psychological barrier be the final capitulation that is needed before the next rally begins? Unfortunately, it looks like the answer is no. In my opinion, there’s still too much complacency in the stock market as evidenced by yesterday’s dismal rally.

We saw the same thing happen in the spring.  The market nears, or crosses, an important technical line, and the assumption immediately becomes that all is well.

But all is not well. Far from it.

What to Buy...and What to Sell

For starters, the average bear market since the end of WWII fell   25%.  If you assume we are in a normal market (a bad assumption by the way), we still have a lot more room to fall here.

If you are as concerned as I am that something else is amiss here and that this market is far from average, then we may see it drop another 10%-20%.

The problem we have here is that time is needed for the market to clear out the excess.  We are doing that in some important ways with respect to housing and credit, but there is more digestion to come in my opinion.

I would feel much better if we saw huge volume followed by a sharp drop in share prices.  Instead, we are doing the slow death one- step forward, two-step back dance.

The good news is that when the bottom does arrive, there will be some excellent buys to snap up. After all, I’ve always firmly believed that out of stock market chaos comes profit, see, "Musings from a Stock Market Spectulator."

These days, my short list of targets include banking stocks, homebuilders and consumer retail stocks. In fact, as I stated in “The Doctor Is In: Your Midyear Portfolio Checkup.” I expect these industries to rally hard when the bottom gets here.

That being said, one stock I would avoid at the moment is...