The stock market is about to make a big move, either up or down.

Big deal, you might say; there always is the risk of a big move. But this is different: The risk currently of such a big move is significantly higher than normal, given the huge return divergence between the Nasdaq Composite Index and the Dow Jones Industrial Average.

This divergence was on full display Monday, when the Nasdaq outperformed the Dow by 0.9 percentage points. Cumulatively over the past two months, the Dow has fallen 5.7% while the Nasdaq has risen 4.2% — a difference of 9.9 percentage points. A two-month Nasdaq-over-Dow divergence this large or larger has happened less than 5% of the time since the Nasdaq was created in 1971.

This recent divergence certainly appears to be a very positive omen, as you can see from the accompanying chart. The stock market on average performed very well in the wake of the 5% of days since 1971 with the biggest Nasdaq-over-Dow divergences. In contrast, as you can also see, the stock market was a well-below-average performer in the wake of the 5% of days in which the divergence was most extreme in the reverse direction.

There is a fly in the ointment of these historical averages, however — a big one. The most extreme Nasdaq-over-Dow divergence occurred in the days leading up to the top of the dot-com bubble, and we all know what happened next. The trailing two-month divergence in March 2000, the month in which that bubble burst, was greater than 40 percentage points — more than four times the current divergence. But far from heralding an imminent big move upward in the market, a particularly severe bear market was about to begin. By the time the subsequent bear market bottomed in October 2002, in fact, the S&P 500 had lost nearly 50%.

Absent the top of the internet bubble, the contrasts plotted in the accompanying chart would be even bigger. This is why there are elevated odds of the market either soaring in coming months or plunging.

How to hedge against a big move

There are several ways in which you can place a bet on a big move in either direction, though many of those strategies are risky. Some have names that won’t be recognized by those of you who don’t invest in options — such as “long straddle” and “long strangle.” The core idea behind these strategies is simultaneously placing two bets, one betting on a big up move and the other betting on a big move downward. The hope is that your profits on the winning side of these two bets will be larger than your losses on the losing side. However, if the market doesn’t move enough in either direction, you could end up losing the entire amount you invest in such a bet.

A less risky way of responding to the elevated risk of a big move is to reduce your equity allocation. Though by doing that you will miss out on some further gains in the event the stock market makes a big move upward, you will sidestep significant losses if the next big market move is downward. It’s your call.