What Five Key Stock Market Signals Are Telling Us Now

As U.S. stocks hit new 11-year lows on Nov. 20, many investors say they just don't know what's ahead.

There's a general lack of clarity on a wide range of issues—the state of the U.S. and global economies, problems in the credit markets, the plans of the federal government, and the fate of hedge funds that are being forced to sell off assets. Unfortunately, much of the fog of the financial crisis will not be cleared up anytime soon.

However, there are several key signals that traders, strategists, and fund managers typically watch closely in times of uncertainty. Given the unprecedented environment, it's not clear if any will be a reliable guide this time, but these signals do give investors something to monitor for clues to the road ahead.

Here's a review of five of those signals and what they're saying now:

1. Technical Signals

Technical strategists analyze and predict market activity based on previous market moves. This week, the stock market failed a key test: The broad Standard & Poor's 500-stock index not only fell below its October 2008 lows, but the big-cap benchmark also blasted below its lows during the nasty bear market of 2002.

On the morning of Nov. 20, the S&P 500 briefly tested these 2002 lows in the morning but then rebounded. But late in the day, stocks sank and the S&P 500 closed at 752.44. That's below the index's October 2002 low of 768.63 and the lowest level for the index since April 1997.

The 2002 lows are "a major support level," says Dave Rovelli, equity trader at Canaccord Adams.

Richard Sparks of Schaeffer's Investment Research says "you could see a cascade of selling" if stocks stay way below those prior lows. Before stocks fell to this level, people could "feel comfortable that that is a basement that the market might not go below."

2. Reports from Washington

Michael Yoshikami of YCMNET Advisors criticizes "a general lack of clarity from the Administration [and] federal agencies on what's happening and what the path out is."

On Nov. 20, Democratic congressional leaders said they would delay a vote on a bill to help the U.S. auto industry—efforts some Republicans have opposed—until December. U.S. Treasury Secretary Henry Paulson has raised eyebrows by changing the focus of the financial package a few times. Bush Administration officials are on their way out of office, but President-elect Barack Obama hasn't yet chosen his economic team, whose members would have no real power until Jan. 20 even if they were in place.

This flow of news from Washington is rattling investors, many market watchers say. "No one really has a good idea what the plan really is," says Bruce Bittles, chief investment strategist at R.W. Baird.

Chad Deakins, portfolio manager at RidgeWorth International Equity Fund (SCIIX), says he doesn't expect any clear signals from Washington until Obama takes office. "Until the new Administration comes to the White House and sets a tone and direction, it's hard to see strong upside in the equity markets," Deakins says.