Early Tuesday morning, European stocks are trading marginally higher, with the US Dollar and Japanese Yen weaker. We could be seeing some recovery in risk appetite, as traders look forward to action in Europe this week on Greece’s debt issues. However, sovereign debt problems are not confined to Greece. Any strength in equities, and weakness in the Dollar and Yen, is likely to be short-lived.

Looking at the chart for SPY, we can see the hammer that formed late in the day on Friday, either due to expectation of European action on Greece over the weekend, or possibly some kind of plunge protection activity. The market failed to follow through on Monday, and remains in a clearly declining trend, with support at the 200 day moving average.

- XLF: The financial ETF is hanging onto the 200 day moving average, and is trading near the bottom of a trading range that goes back to August. A break below Friday’s low would provide a signal to short.

Overall, there appears to be poor risk reward both long and short, considering the market is trading bearish but oversold. Here are a few possible long picks in case we get an oversold rally:

- CPTS

- ISRG

- CAGC

I am likely to steer clear of equities, to focus more attention on the forex market. This morning’s weakness in the Dollar and Yen is moving several pairs into support/resistance areas, setting up potential trades.

- CHF/JPY: Bouncing into resistance.

- AUD/JPY: Ditto.

- GBP/USD: Has broken significant support, and is set up for a short entry here.

- GBP/JPY: In the process of breaking key support.