The elements of market timing including investor sentiment, trends in interest rates and fed action, overall market valuation, technical underpinning, and flow of funds. Market Timing is a top down view of the market and its prospects. First, is the state and apparent trend of interest rates and whether the Fed is in a tightening or easing bias. Futures behavior in the fed funds and t-bills futures markets can give some hint. These contracts are listed daily in the newspapers and are quoted as a discount from 100.
Interest rates are critical to market values for three reasons.
Stocks are basically the present value of future earnings. An investor is willing to invest if he gets his money back in time at an expected rate of return. Additionally, higher rates of return available in fixed income instruments siphon off money from the stock market by reason of deteriorating supply and demand dynamics. Finally, many companies employ debt in their capital structure. Higher borrowing costs hurt earnings.