Finding the best stocks is never easy even when you have a good idea what trading strategy will work in the current stock market. Investment options right now are shrouded in uncertainty, however, and its tough to plot a trading strategy right now as the stock market remains volatile.

Getting hot stock picks is important, of course, but you have to know where the index funds are headed and which sectors are succeeding if you really want to make the best investment decisions.

So here’s my take for the best trading strategy based on the current stock market outlook: I continue to maintain a defensive posture, as should you.

The stock market is fundamentally overvalued and rising primarily as a result of easy money. A significant portion of recent gains will be given back over the full market cycle. But when will the cycle end? Price action in the financial markets is as good a guide as any to turning points in market cycles. Let’s look at the charts for more detail.

Chart A is a short-term chart of the Dow. The Dow is ignoring all the potential bad news in the world and powering forward. Momentum appears to be slowing, but the trend is still up. From a slightly longer-term perspective, there is resistance near 12,000. The price action is telling investors that the Dow has at least another 7% in it.

Chart B is a short-term chart of two-year Treasury notes. Two-year notes are more sensitive to the Fed funds rate than long-term rates. Two year notes have been in a trading range between 0.70% and 1.20% for the last nine months. A breakout above 1.2% would likely signal tighter money, which could derail the uptrend in stock prices. For now, the bond market is assuming the Fed is on hold.

Chart C is a short-term chart of copper. Copper is said to have a PhD in economics. If copper prices are rising, the economy is likely improving. Copper prices look toppy. The trend is still up, but a break below trend could signal a deteriorating economy, which would be bearish for stocks.

Chart D is a short-term chart of gold. Gold recently broke out to a four-month high on concerns of a sovereign debt default in Europe. The upside breakout clears the way for gold to retest its December high of $1,215. Rising gold prices are not often bullish for stock prices. A continued rise in gold would be cause for concern

To plot a clear investment strategy and trading strategy going forward, I encourage you to watch these four indicators closely in late May and into June.

Tell us what you think here.

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