Musings on Blackrock IPO and the Market Rally.

So, I got to thinking about the rally from last week. It certainly appears that the Bulls are in control right now. The complacency that I have been talking about in the market is again taking form. Investors are comfortable that the correction is all but over. But I have many conflicting signals that say that perhaps this is still a "dead cat bounce". ultimately, I know that I shouldn't fight the tape. But I feel as though the charts must prove more before I will join the band wagon.

Number one item that I am baffled about is the announced Blackrock IPO which is priced at $4 billion dollars. Truly, the media is making a big huge deal out of this, spinning this IPO as one of the biggest in recent times, and extolling virtues of the strength of this economy. As the logic goes, more IPOs there are, the healthier the market. Yet, I have to stop and beg this one question: Why?

I don't have any problem with the IPO market. Without it, the markets cannot sustain itself. But again I ask why? The company's business revolves around buying out publicly traded company and taking them public because there is more value in dismantling the company in question when it goes private or bringing them public after it has been "rehabilitated" and the market begins to "reappreciate the true value" of the company. So, I got to thinking. Why would a company where their business involves taking publicly traded company out of the market because they feel more value and less scrutiny resides in the private sector so that each company can focus on enhancing the business instead of pleasing wall street analysts? Why would a company who believes private is far better than being public want to now join that game that they have tried so hard to get away from?

I cannot believe how pessimistic I have become over the past few years! Perhaps this question is a directly related issue. But none the less, my pessimisim about the Blackrock IPO seems to that Blackrock has an ulterior motive of passing on the risk to the retail investors. I believe that we may have reached an uncertain top in the market. Perhaps Blackrock insiders also realize this. Perhaps they realized that they paid a huge premium to take their respective companies private. In packaging this IPO as a highly publicized event, the demand will be drummed up when it opens. It may even garner high prices. But if anyone hasn't seen the Heely's (HLYS) IPO, the group that is currently left holding the bag are the retail share holders.

Thus I can again connect the dots from this view point on Blackrock and say that this is another sign that the market has topped. The media can hail this event anyway they want to. Under the current circumstances, the game of playing denial and getting as many unsuspecting retail investors to prop up the market while the rest of the smart money gets out has been played to a text book perfection.

The market rally is another one of those events that began March 14th. The follow through day on the NASDAQ was on average volume just 25% greater than prior day's volume. On top of that, the follow through day came only after 3 weeks of correction. I spoke on this aspect a while back, but ideally, you'd like to see at least 7 weeks. The follow up days in the markets again were on light volume. I know that a rally is a rally and I probably missed out on a good 3% market rally but I still stand firm on the short side because a strong follow through day requires more negativity to be built in. The market currently is hoping beyond all hope that the "Goldilocks" still remains. I think this sets us up for more down days ahead. Perhaps judging by the way the market has behaved in a very volatile way, next week may bring back the serious whipsaw that will again have the bulls scurrying. I do not know what that catalyst will be. Will it be Uncle Ben's testimony to congress on Wednesday? Will it be Iran? Will it be the subprime and now the prime Alt-A mortgage issues? I don't know.

I will take my chances and continue to hold my puts on Countrywide. It is gut wrenching but I have to stand behibnd my principal. Unless the market shows me with more evidence and the economy can confirm that the mortgage (noticed how I didn't say subprime?) will not spread to the economy, I will stay this way. Maybe I will lose everything and admit defeat and go about my life in the usual way. But there are worse things that I can think of. But for now, I trust no one and I firmly adhere to "sell the strength and buy the weakness". Good luck everyone! Its rough out there.