Good sign for the start of the year end rally

As I said last week, the S&P was in the trading range between 1100 to 1220 and I expected it should drop significantly when it got close to 1220. It did yesterday. The market plummeted 2% yesterday with DOW dropping 247 points and S&P 24 points, respectively. This was severe but I had expected more decline before it truly starts with the year end rally. However, based on what happened today,  I'm not sure we would see more severe market declines before the year end. Let me explain.

You may have noticed that in the past several months, regardless how strongly the market was bouncing back, there was no participation of the financial sector. Actually the financial sector was doing very poor. For a persistent and long lasting market rally, it definitely needs the energy of the financial sector. We may have seen this energy today. Goldman Sachs (GS) reported a very poor quarter result today, missing the estimate in a wide margin, which only occurred twice in the past 10 years. Normally this would cause a stock to plummet. However,  GC jumped 5.5% today. When a stock is doing well with very negative news, it often means the stock has reached its bottom. This is especially an important sign from an industry bellwether like GS. Actually the whole financial sector, together with the whole market, was doing very well today in the negative news. This may signal that the severe correction for the stock market in the past 3 months has come to an end and we may see the start of the year-end rally.

While it is risky to make a call based on one day price actions, I'd like to bet on this. I'd start to accumulate more shares of the stocks I'm interested in. For those who would like to take more risks with speculation, a leverage ETF for 3 x the price performance of the Russell 2000 Index may be considered. It is called "Direxion Small Cap Bull 3X Shares", symbol TNA. If I'm right and the market truly rallies towards the year end, the small cap companies will usually lead the market rally. Russell 2000 is the index for small companies. Of course, I must warn you that this is purely a speculation with a lot of risks involved. If the market turns south, TNA will lose 3 times more accordingly. So only bet with the money you can afford to lose.