This posting features the hourly chart of the S&P-500.

As can be seen on the chart, there are a number of signs that favour the bulls over the short run, but as we'll explain in this piece, there are a couple of glaring reasons why there will be a drop to at least the 1040 level before too long.

S&P hourly chart

As can be seen on the chart, it looks like the index is trading within a rising channel on the level of the hourly chart (sub-minor level of trend). In addition to finding support from the lower end of the now clearly apparent channel, a couple of times yesterday, a look at the RSI pane will show you that the centerline on that indicator also provided the index with the opportunity to experience the beginning of the next upwards leg in the rally.

As of the end of trading on Tuesday, the index sits perched just below minor resistance from the late-Sept highs at 1074.65. If (once) that level has been taken out, a target of 1100 comes about. This target is derived from a potential inverted head & shoulders pattern. There will possibly be a bit of resistance in the 1088-1090 area, which is the level of the upper line of the rising channel.

All in all, a move to the 1088-1100 area might be forthcoming today or within the next couple of days but we'd be a little cautious getting too carried away on the bullish side of things. Why? Well amount several other reasons, the hourly chart provides a couple of prime examples.

Notice what happened at the open on Oct 6th and Oct 8th. It seems like the bulls, jubilant at the prospect of another rebound, couldn't help themselves and placed buy orders with impunity even before the markets opened for each of those sessions. The rest is a couple of juicy little gaps that you'd imagine the bears will be waiting to fill, in the not too distant future.

Pre-market futures today are pointing to a similar opening today. If the market open with a gap, as is currently expected, there will be another small area of vacuum that will suck prices lower at some point in the not too distant future. So, there you have it. Enjoy the rest of this up-leg, while it last, but be prepared for a move of at least 40-50 points (more if the index rallies much further first) points to the downside, sometime in the next week or two.