The easy answer is don't trade spy at all as an investment vehicle.

If you're bearish, sell the banking sector since they have the most problems and avoid buying any company that doesn't have excess cash and positive free cash flow.

If you're bullish, buy banks, energy, materials, consumer discretionary and industrials.

If you don't know buy consumer staples, healthcare and selected tech stocks and solid dividend plays; avoid length in banks, consumer discretionary and industrials. Also, buy emerging market etfs.

Remember the S&P 500 is a collection of stocks. The S&P can chop around while individual sectors and stocks do very well. In my view the only way the S&P can rally alot from here is if the banking sector is healthy. The Fed is essentially saying they are not healthy yet or they would be tightening. And the only way the S&P can go down alot (i.e.,below the 930-950 level which could still be considered a normal technical correction) is if the Fed/world governments fail in their attempt to stabilize the banking sector and the world economy.

Personally I have a balanced approach and am net long but with plenty of cash in case of a further market drop. Long consumer staples, selected techs, energy and materials, healthcare and foreign etfs. Short selected banks, long xlf puts and short spy calls.

http://www2.standardandpoors.com/spf/pdf...

Best of luck, be you bull, bear or uncertain. Personally I think those who are uncertain are in the correct camp.