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

After taking a little breather on Thursday, stocks again rallied on Friday, and in the case of the S&P 500, closed the week at the highest levels in two and a half months. Last week’s 6% rally has brought the index back to the top of its two-and-a-half-month trading range.

If we measure the move from the May highs down to the August lows, we find that the current 1,220 area is right at the 50% retracement line. From a momentum point of view, various oscillators show that stocks could rise higher in the intermediate term and a logical first target to look for is near 1,260-1,270.

It is of great importance, however, to remember that we remain in a bear market and, as such, any rally will be a bear market rally. Such rallies tend to be viciously sharp and equally volatile. Fake-out moves are a mark of bear market rallies, and trading on unconfirmed signals is incrementally more dangerous.

Yes, the S&P 500 closed above the 1,220 mark on Friday but a) only moderately so, and b) still within the greater trading range. The 12% rally off the early October lows was accomplished in a short amount of time so it is certainly subject to a retracement before potentially rallying again.

Large-cap technology stocks performed well last week, and the Nasdaq 100 index is now only about 2.5% off the 2011 highs. Any short-term pullback here, should we get one, can be played via the large-cap stocks among other rally leaders of last week.

Two macro charts I like to focus on for clues about the market are the AUD/USD currency cross and oil. Note from the charts below that are at key downtrend lines from their 2011 highs. For equities to further extend this bear market rally, these two assets would have to move higher as well. Given the resistance right here, right now, however, that could indicate a pause before a continuation higher.

This week, earnings season kicks into full gear, and while that certainly will be a contributing factor to market volatility,Europeis what we must focus on for the bigger swings.

Last week, the spread between German and French government bonds widened significantly, i.e., French bonds fell relative to German bonds. This may be an indication of more weakness to come in the euro if investors perceive this weakness in French bonds as being connected to some banking issues in that country.

Watch the euro and the U.S. dollar for clues to the U.S.equity market. As of Friday’s close, the EUR/USD currency cross has retraced up a little more than 50% of its most recent swing and may find resistance somewhere in this area (see the gray bubble on the chart).