Investors Daily Edge’s Lynn Carpenter says the latest rally in U.S. stocks could have more staying power than the previous bounce in spring.

Using technical analysis to find the relative strength of the U.S. stock rally compared to other markets, Lynn says there are signs that money is heading back into the U.S. again.

Behind me, close to my right hand, and ever so slightly above my head (what symbolism!), lies my much-used copy of John Murphy’s Technical Analysis in Financial Markets. Murphy is the dean of technical analysts.

Literally one of the leaders who wrote the books that made it respectable. At first, he did the same sort of thing all technical analysts worked on, chart patterns, indicators, signals. Then in later years, he became more and more interested in what he calls “Intermarket Analysis.”

It’s basically the second rule restated. Different asset markets have normal relationships to each other. For instance, when the dollar gets stronger, commodities tend to go down. If that doesn’t happen, chances are good that one of those assets is giving a false signal.

One of Murphy’s tools for figuring out where money is headed is, as you might expect, through charts. One particular tool he uses regularly is the “price relative” chart. It basically compares one stock or index to another to determine which is gaining relative strength.

I just created such a chart for the Wilshire 5000 against Morgan Stanley Emerging Market iShares.

The Wilshire is my preferred index for looking at the overall U.S. equity picture. Unlike the Dow or the S&P, it does not show just the large companies. And unlike the Russell 2000 or Nasdaq, it does not emphasize small companies or predominately new and tech companies. It’s the whole broad market. Now here’s the chart, and it showed something I find significant:

What I noticed in particular was that that little rally we had this spring was not well backed in terms of a typical intermarket relationship. Its relative strength compared to emerging markets was weakening as the Wilshire was rising.

In a good, strong, U.S. market rally, U.S. stocks should be performing well against emerging markets. Both may rise together, but a strong U.S. rally means U.S. stocks are rising more. Emerging markets are where money floods in great washes when it has doubts about the U.S. or other big economies but still wants to play the stock game.

This latest U.S. rally, though, shows a different pattern from the spring rally, a good one. The Wilshire is rising in strength against emerging markets.

It’s not a promise, but it’s a very broad hint, and I for one am paying attention: looks like money is finding its way back to the U.S. again.

Yes, there are a thousand reasons why that might not be so, and U.S. bashers will surely send me several variations. And we do have our troubles to solve. The strengthening dollar is by no means safely established yet. The economy is certainly not in the clear. But the stock market typically anticipates economic turnarounds, and this is a hint worthy of your attention at the very least.

I for one am making a shopping list and checking it twice.

Source: One Reason to Think this Rally Is for Real