Stock And Forex Trading Picks For Tuesday 2 February

After Monday’s trend day higher, investors may continue to look for bargains through the middle of this week. Certainly the market’s nature has changed during the past two weeks, with many trading days characterized by sustained distribution and an absence of dip buyers.

Monday we are getting some news that Senator Dodd wants to water down President Obama’s bank proposals. The President’s newly aggressive stance on banks (which I support) was a catalyst for the current bearish cycle, as investors worried about the impact of trading restrictions and potential loss of liquidity in the equity markets. Considering Wall Street’s influence in Congress, we should see some pushback, which in turn could instigate an oversold bounce.

All the same, I will consider any bounce to be a dead cat, until I see indications to the contrary. Meanwhile, a number of stocks have held up through the recent carnage. I will be focusing some attention on stocks with high short interest, considering that squeezed shorts will provide much of the fuel for the next rally.

- IMAX (NASDAQ:IMAX)

- Rex Energy (NASDAQ:REXX)

- China Agritech (CAGC): I will be looking for a clear break of the downtrend.

- China Automotive Systems (NASDAQ:CAAS): Monday’s low provides a good place for a stop loss.

- Corinthian Colleges (NASDAQ:COCO): We are seeing some accumulation coming off this base near the lows. High short interest.

- Valero Energy (NYSE:VLO) looks ready to break out.

The forex market is serving up some interesting charts, with several currency pairs trading near key technical levels. Here are three pairs I am watching most closely:

- EUR/JPY: JPY has been strengthening against most major currency, with the exception of the Dollar. The Euro, on the other hand, is under pressure as the EMU struggles with debt issues in Greece and potential problems elsewhere. From April 2009 until last month, EUR/JPY bounced several times off of the 127.00, creating a clear support/resistance level. EUR/JPY made a clear break below that line during the last week, and looks likely to test the 122.50 area.

- CHF/JPY: A very similar pattern to EUR/JPY, but the pair is trading above support.

- AUD/USD is trading sideways, and close to breaking support near .8727. The RBA just announced that there will be no rate change (a .25 raise was expected), and AUD sold off in reaction. A breach of support appears likely.

Bear in mind that an oversold rally in the stock market could reverse short-term forex trends, at least temporarily. Specifically, with rallying stock market, traders will be more likely to sell USD and JPY. Given the overall technical picture, I would expect any such reversals to be short-lived.

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