Judging by my latest emails, everybody wants to know "how should I play the financial sector right now?" Let me make it real simple for you: avoid this entire sector at all costs. Don't buy them and don't short them, at least not yet. I've been repeating the same thing over and over since December, so while I know this will leave many unsatisfied, nothing much has changed in two months. In fact, the recent downgrade concerns over bond insurers MBIA (NYSE: MBI) and Ambac Financial (NYSE: ABK), student lender Sallie Mae (NYSE: SLM) and more importantly, prime mortgage lender Fannie Mae (NYSE: FNM), means the situation has gone from bad to worse. Yes, we still risk economic disaster and that's when defaulting consumers could really hurt credit card companies American Express (NYSE: AXP) and Mastercard (NYSE: MA).

But thanks to the lack of transparency in this industry, there's simply no way to accurately judge how bad things really are and as I learned the hard way, accurately gaming disaster is next to impossible.

The good news is that if I had to guess, I'd say the chances of a true disaster are slim. Given that this seems to be an increasingly popular view, many of these financial stocks have been punished to the point of exhaustion. And just as I wouldn't buy them, I wouldn't short them here either. Despite the seemingly steady stream of negative news, the risk of further damage to shareholders and the overall market crashing all around them, broker stocks like Goldman Sachs (NYSE: GS), Bear Sterns (NYSE: BSC), Merrill Lynch (NYSE: MER) and Morgan Stanley (NYSE: MS) have basically stopped going down. They haven't bounced much either, but the nation's three largest banks Bank of America (NYSE: BAC), Citigroup (NYSE: C) and JP Morgan (NYSE: JPM) have managed that feat, with all three bouncing considerably off their lows.

Smaller banks like Wells Fargo (NYSE: WFC) and Wachovia (NYSE: WB) have also joined in the bouncing fun and, if these bounce plays follow the pattern of similarly rebounding homebuilding stocks like Beazer Homes (NYSE: BZH), Toll Brothers (NYSE: TOL) and Centex (NYSE: CTX), their runs could continue. Stronger still firms like E*Trade (NASDAQ: ETFC) and Washington Mutual (NYSE: WM) have seemingly turned the corner in the past month, both doubling off their lows.

So, as you can see, there are a great many crosscurrents at work right now. So many that my head hurts from trying to analyze all the inter-related trends. Yours probably does too after reading about them! And when a messy situation like this gives everybody headaches, there's no way the risk-reward ratio can be that good no matter how you slice it. In time, all will be resolved and when clear trends present themselves, only then will I look to play this sector.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund