Technical Bounce Gaps to Next Stage

Pre-market futures are up sharply as traders finish out the first stage of the technical bounce that started on Friday. Once again, most of the news has been bad: DOW is cutting jobs, MMM guided down and is cutting jobs, and MET is guiding down. The new White House has decided it will focus on maintaining the stimulus plain (bailout) instead of decreasing the deficit.

Despite all the news, the Dow is set to gap up very close to the next level of resistance. I speculate that traders, who are creatures of habit, are basically "having" a Santa Claus rally despite the fact that there is absolutely no catalyst for a traditional rally (#1 reason is Mutual Fund Inflows - and the market has had huge Mutual Fund Outflows, and will likely continue to have outflows for several more months. And #2 reason is Christmas Retail Spending, and retail spending is down sharply with most of the current consumer spending coming on deep retail discounts). I've learned to never discount human emotion in trading no matter what the fundamentals say.....so bullish for now.....

Here is a chart of the Dow:
(click on image to enlarge)

It is important for the gap this morning to hold and not be an exhaustion gap right to resistance. It's likely that the market gaps and then tests the 8,850 area some time this morning. Eventually this current swing may break 9,000 and head for the 9,400 - 9,600 area. If the gap fails then the swing will fall back into consolidation and the upswing will probably be over.