“Sometimes, it really is a question of supply and demand,” writes E.S. Browning in today’s Wall Street Journal.

“That’s certainly the case with the broad economy. And now, some analysts think that supply-and-demand issues could be weighing on stocks. Recently, the supply of new stock (from both new and already-public companies) has been on the rise, as demand seems to be leveling off, which would be a worrisome trend if it continued.”

“In the stock market, supply and demand works the same way as with anything else. When demand goes up, or when supply falls, that is good for stock prices. Historical data suggest, in fact, that this is the kind of thing that was happening behind the scenes during the stock bubble, says Phil Roth, chief technical market analyst at New York brokerage firm Miller Tabak.”

“And it was early in 2000 — just as the market was peaking — that gains in stock supply began to outpace demand, Mr. Roth says. Stocks fell, and kept falling until about one year ago.”

“In the stock market, Mr. Roth says, ‘it is always all about supply and demand.’ “

“The stock market is complex and it can be hard to track supply and demand, especially in the short term. Demand for stocks, for example, can come from pension and retirement funds, from individual investors, from mutual funds, from foreign sources and from other sources. As a surrogate for overall demand, analysts often look simply at the flow of new money into mutual funds. That flow has shifted drastically this year, for the better.”

“As recently as February of this year, money still was moving sharply out of mutual funds, according to the Investment Company Institute, a trade group that compiles the data from mutual-fund companies. But the outflows finally ended in March, and some strong inflows began. The net inflows into U.S. stock mutual funds got as high as $19 billion in July, and then fell back to $18 billion in August and $16 billion in September.”

“The ICI doesn’t release data for October until later this week. Mr. Roth of Miller Tabak says that estimates suggest that the flows probably haven’t fallen any further. But the leveling off in the rate of new flows looks like a warning sign to some analysts that demand is slackening.”

“It was one of several warning signs cited by Louise Yamada, technical analyst at Citigroup’s brokerage arm in New York, in a report to clients last week.”

” ‘There is growing technical evidence that, at the very least, the [stock] rally may be tiring,’ Ms. Yamada warned.”

“Bigger problems are showing up on the supply side. Like demand, supply is affected by a wide range of factors, including new stock issues, corporate buybacks and mergers that take some stock out of existence. Analysts often look at new stock sales and corporate buybacks as an indicator of whether stock supplies are rising or falling.”

“Not surprisingly, new stock sales fell during the bear market. It made no sense to try to launch a stock issue when prices were falling and customers were surly.”