Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

After a hectic week, stocks closed up across the board with the Nasdaq 100 leading the majorU.S.equity indices higher. Last week’s rally was due in part to oversold conditions and overly negative sentiment, which triggered a classic bear market short squeeze. Additionally, Friday was a quadruple-witching options expiration, which also helped the bid under equities.

I exercised caution on the short side over the past couple of weeks as I saw the potential for a short squeeze. Now that we’ve rallied hard off the recent bottom, the likelihood of more weakness in equities is increasing.

Technically speaking, many of the major U.S.and European indices are either at or very close to important resistance areas after last week’s rally. They may overshoot these levels, especially as shorts get squeezed further. However, at some point soon, risk/reward will again be in favor of the bears and stocks might try one more dip lower.

The daily chart of the Nasdaq 100 shows how last week’s rally took the index a little above its 200-day simple moving average.

As I’ve pointed out countless times in recent weeks, after major trend breaks, such as we saw in early August, stocks have a tendency to retest key areas like major moving averages before turning back in the said direction. What I will look for is clear buying exhaustion signals in daily candlesticks over the coming days. If and when these signals show up, short positions can again be opened at favorable risk/reward rates.

The Euro Stoxx 50, as measured by the SPDR Euro Stoxx 50 ETF (NYSE:FEZ), is displaying very early signs of exhaustion to the downside on its weekly chart. Note the stochastics are showing divergence as compared to the price of the index, i.e., the index made a lower low last week, but the stochastic did not. This is something to monitor closely as Europe has recently led the tape.

Last week, I pointed out that the KBW Bank Index (BKX) had reached support at a critical 61.8% Fibonacci retracement level on the weekly chart. As a further reference point to the significance of this support zone, note that the NYSE Arca Securities Broker/Dealer Index (XBD) also found support at the 61.8% Fibonacci retracement level on its weekly chart.

It’s sure to be a big week, and given the important near-term resistance areas, which major equity indices are sneaking up on, it is also likely to give us clues as to whether stocks will soon revisit or undercut their August lows.

• See Sam Collins’ Daily Market Outlook: Where Should You Place Your Money This Week?
• See Sam Collins’ Trade of the Day: Gap Coming Up Short – Short It
• See Serge Berger’s Trade of the Day: Shorting Capital One is a Capital Idea