Though she acknowledged the "post-election blues" continues, Mary Ann Bartels, head of U.S. technical analysis at Bank of America, said a year-end rally is "still a go" in commentary released Tuesday.

"The market is extremely oversold and with the seasonal positive bias in November and December we still expect a year-end rally. Regaining and holding the 200-day moving average is the first hurdle at 1382," said Bartels. "The next hurdle is getting above 1400-1405 and then 1430-1435 is needed to refresh the potential a sustained rally."

"But 2013 is setting up to be a volatile first half, in our view. A deeper correction is likely to occur due to the negative divergences still in place with market breadth and the transports," she added. "If 1346 does not hold the next levels of supports are 1325 to 1248."

The major U.S. stock averages soared Monday as better-than-expected housing market data gave extra mileage to a rally fueled by optimism over budget talks in Washington. Tuesday offered additional evidence of a housing market recovery.

The Census Bureau said that housing starts rose to a 894,000 annual rate in October from a downwardly revised 863,000 in September. It also reported that building permits fell to an annual rate of 866,000 in October from a downwardly revised 890,000 in September.

On average, economists were expecting housing starts of 840,000 and building permits of 865,000 for last month.

David Onyett-Jeffries, an economist at RBC Economics, said it "appears likely that the housing market will maintain this momentum during the coming months ... thereby supporting further increases in homebuilding and leading residential investment to make a positive contribution to the overall economy after acting as a drag in each of the last five years."

Earlier Tuesday, Richmond Federal Reserve Bank President Jeffrey Lacker, speaking in New York at the Shadow Open Market Committee's Fall Symposium, said that he is against the idea of linking labor market developments to the central bank's stimulus program because it could cause inflation levels to rise.

The FTSE 100 in London closed up 0.18%, while the DAX in Germany finished higher by 0.69%.

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