Yeah, valuing the market on earnings is tough. Right when things are cheapest, cyclical earnings are at a trough, perhaps even negative with losses and write downs. The Shiller/Graham PE is better than using one year or using forward estimates IMOP, but I like to look at P/E 10; Market Cap to GDP (and GNP) as well as price to book and Tobin's Q, just to get a sense of where the market valuation is. Of course, I only allow myself 20% adjustments to AA and only in certain accounts to minimize the impact of any timing/valuation adjustments.
BTW, I don't think Shiller has been out of the market this whole time. What I have read indicates that the PE 10 would have had you out of the market for long stretches, but every time I've heard him speak about it he couches it as "maybe one should lighten up on U.S. stocks." He's a pretty humble guy and has noted that he really admired that Gene Fama said "I don't know or we don't know," a lot during interviews around the Nobel.