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The Breakfast Briefing


The great rally of 2012 has shown signs of tiring. But don’t fret, China is coming to the rescue.




Major stock indexes have run into some resistance around their 2012 highs. The S&P 500 has spent much of February struggling to break through 1350, while the blue-chip Dow Jones Industrial Average has failed in recent days to make the final leap up to 13,000.


The latest example of the rally petering out came yesterday. Stocks flirted with their worst point decline of the year before staging an impressive comeback in the last half-hour of trading. The Dow has risen in five of the last six trading days. But yesterday was the eighth straight session it failed to close above 12,900, let alone 13,000, underscoring the rally’s fatigue.


“The trend is still positive, but upside should prove limited in the near-term,” says Mark Newton, chief technical analyst at Greywolf Equity Partners. “There remain very real concerns with regards to volume, breadth, little participation, and lack of acceleration in the indices, which have broken out to new high territory.”


That could change, however, as China has essentially given a vote of confidence that the euro zone will be able to fix its problems. People’s Bank of China Governor Zhou Xiaochuan said he believes Europe’s issues are solvable. China will expand its investments in the area, including helping support Europe’s bailout funds.


Asian and European stocks rose on the news. As of 6 a.m., Dow futures are up 68 points and the blue chips look poised to take out 12900. The S&P 500 futures are up 8 points.


Even as the China action could propel stocks to new highs, its hard to ignore how the bullish bandwagon is getting awfully crowded. As we’ve mentioned several times, the notoriously bearish Nouriel Roubini has pulled back on his negativity, BlackRock’s Larry Fink says everyone should be 100% in stocks and Warren Buffett continues pushing stocks.


Apple’s stock price seemingly can’t go down, Barron’s says Dow 15000 is on the way and Professor Jeremy Siegel says Dow 17,000 could come in a few years.


All that bullishness has made at least one prominent investor take note and decide to pull in the reigns a bit. Dennis Gartman says the raging optimism has prompted him to take some of his chips off the table in the short-term.


Of course the fear is missing out on potential upside, something he alluded to in this morning’s note.


“Share prices are higher on the news…that the People’s Bank of China will come to Europe’s aid,” he says. “We did indeed fight hard to get our long position in equities built and insulated from random market noise, and we feared that exiting even a small portion of the position might prove problematic.



Stocks to Watch

Zynga issued its first earnings report as a public company on Tuesday, posting mixed results that included a 59% gain in sales but also a loss for the period that helped whipsaw the social-gaming company’s shares in late trading. Shares were recently off 7% at $13.35 in volatile after-hours trading.


Given Imaging’s fourth-quarter earnings jumped 76% as the medical-technology company saw stronger sales for its endoscopy capsule. Shares rose 13% to $20.05 after hours.


The U.S. Federal Reserve Board, after delaying a decision twice in a week, unanimously approved Capital One’s plan to buy ING Groep NV’s (ING, INGA.AE) U.S. online-banking business, sending a signal that banks can expand even in this new era of heightened scrutiny. Capital One shares rose 2.3% to $49.30 after hours, while ING’s American depositary shares climbed 4.2% to $8.98.


Overnight Headlines (Links)

Goldman Analyst Draws Scrutiny

Euro-Zone Economy Contracts

China Bolsters Rhetorical Support for Europe

BNP Paribas Profit Hit By Greece

Fake Avastin Found in U.S.