Ok, the first thing I do when making a decision on the SP500 is look at where it stands on a valuation basis. My preferred valuation metric is the Shiller 10-year PE ratio. I will refer you to this post to understand a little more about this metric.
What I have done is a very long-term backtest going back to 1870, where I go long the market when the PE ratio is below 2 standard deviations from its upper mean. The only part of the research that works with information not available during the backtest is the mean. I have decided to use this hindsight bias because I think 150 years of history are a very good reflection of most market cycles and conditions. I will almost never include hindsight in a backtest, but I think in this case it makes sense to me.
This simple strategy has outperformed a buy-and-hold using the Sharpe Ratio for risk-adjusted returns. The Shiller PE strategy produces a 0.24 S.R. versus a 0.07 S.R. for buy and hold. What is important is that there is a current Sell signal to go flat. This model does not go short.
I don’t think it is a good strategy to rely solely on this really long-term valuation model as your only decision input. In fact, I am a believer in multi-factorial models, but I still believe in keeping it simple.