I wrote to somebody yesterday morning and told them that there were three options with the stress test results:  Either the market goes up, down, or nothing at all.  That is problematic given the huge uptick in the S&P 500.   All of these variables are confounding the best traders in the business.  Just as many say that the market is going up as there are people saying a correction is near.  At some point we have to say that we just don’t know and make some trades around that.

When was the last time you watched one of the financial channels and they told you how to trade around, “I don’t know?”  I can’t remember a time that it happened.  There are two ways to do this:

1.)  Do nothing.  If you don’t feel good about acting, don’t act.  It seems so simple but the less seasoned trader feels like inaction is a mistake.  Sometimes it’s the best thing you can do when you just don’t know.

2.)  Hedge!  Hedge 50/50.  There have been many days where I didn’t know what was going to happen in the short term so I get as close to a 50/50 hedge as possible.  This means that I have equal weight between stocks that will go up with the market and those that would go down.  One of my favorite ways to do this is a short term postition in both DXD and it’s brother DDM.  This means that either way you will have something going up.  Of course, you have to be careful and see these as short term positions.  If they hover within your range, you can hold on and profit from both.

Of course, options are another way to hedge but that is for the more season trader.  A less complicated hedge is to short sell a stock but again, learn everything you can about this before getting in to this.

What will the stress tests do to the market today?  I don’t know.  I’m positioned as a bear right now but also have upside protection.  Most traders I know have some sort of hedging.