Machinery alignment (motor to pump, etc) starts with checking
indicator sag.  Typical dial indicators with 3/8 to 1/2 ich diameter
rods and mag bases sag as much as 0.010 inch depending on how far
extended they are.  To test, stick your setup,adjusted exactly as you
would on the flywheel/crank to check a bell housing, on a piece of 2
inch diameter or larger pipe.  

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Zero it with the indicator on top, at 12 o-clock
Then rotate the assembly so the idicator is at 6 o-clock.
The reading is 2X the indicagtor sag, and the reading you would expect
with a perfectly centered bell housing.

To avoid errors due to indicator sag, check with the crank vertical.

Don't forget to check the face runout as well as the pilot bore runut.