Supply and Demand

The market is under pressure again. We appear to be in the correction that most market watchers expected. The fall in stock prices could be simply the fulfillment of the expectations by a lot of market experts. If they expect a pullback they sell and make it happen.

This pullback is just that, a pullback. The indexes are not likely to go back to their year lows. There are too many ‘green shoots’ that appear to be indicating a slow recovery in the economy. This weakness may be as much as 10%. That is an opportunity to buy if it happens.

Yesterday a small ‘green shoot’ was a report about housing. Sales rose 2.4% in May for the second month in a row. Inventory of unsold homes was down 3.5% to 9.6 month supply and prices were down .1%. Make no mistake. These are not good numbers but they are improving numbers. With foreclosures putting excess supply in the market housing is going to remain weak for a long time. However, it appears to be stabilizing for the low priced properties. Inventory numbers are key and they have been slowly improving. The unknown is how much more pressure will foreclosures impact inventory? Can low interest rates and falling prices continue to absorb inventory? The answer is yes with a caveat. How low will prices go and how long can rates stay as low as they are? It appears that housing is starting the long slow process of stabilizing.

Good Trading
Steve Peasley

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