Why Japanese stocks could keep crushing the S&P

Japan's Nikkei index has risen 17 percent this year, far outpacing the S&P's 3 percent gains. And Oppenheimer technical analyst Ari Wald says that Japanese stocks are set to keep outperforming through the rest of the year.

"We are bullish on the U.S., but one of the markets we're even more bullish on than the U.S. is the Japanese Nikkei," Wald said in a Tuesday "Trading Nation" interview.

The technician points out that while the Nikkei has been beating the U.S. lately, if one looks over a 25-year time frame, the Japanese index has been lagging by an incredible 90 percent. That means the Nikkei "has plenty of long-term catch-up potential."

Of course, many American investors have already trimmed their exposure to U.S. stocks in favor of the Nikkei, in addition to other international products.

A pedestrian passes in front of a stock market display in Tokyo, May 28, 2015.
Yoshikazu Tsuno | AFP | Getty Images
A pedestrian passes in front of a stock market display in Tokyo, May 28, 2015.

Examining ETF flows, Stacey Gilbert of Susquehanna finds that U.S. investors have plowed $72 billion into international-exposed ETFs, while U.S.-focused ETFs have seen outflows of $25 billion.

"Investors have positioned, and are continuing to position, everywhere but the U.S.," Gilbert said in the segment. "I would say the majority of the focus right now tends to be on Europe and Japan."

One particularly popular product has been the WisdomTree Japan Hedged ETF (DXJ), which allows investors to take a position on the Nikkei while hedging out exposure to the tumbling Japanese yen. The DXJ has beaten the Nikkei in 2015, rising 22 percent.

On the other hand, some analysts, such as Credit Suisse's Stefan Worrall, say that after such an impressive rally, "some correction is due."

Read More Nikkei steps back on profit-taking after long rally

—Reuters contributed to this report.

Want to be part of the Trading Nation? If you'd like to call into our live Monday show, email your name, number and question to TradingNation@cnbc.com.