Are Chinese stocks losing hold over U.S. markets?

Trading Nation: U.S. stock shrug off China
Trading Nation: US stocks shrug off China   

In recent months, the U.S. market has largely followed Chinese equities in each new dramatic plunge. But as the Shanghai Composite tumbled more than 6 percent on Thursday, U.S. stocks ended the trading day up more than 1 percent, leading some to believe that the correlation between the two markets is becoming much less relevant.

Dennis Davitt of Harvest Volatility Advisors said the strategy of taking cues from the Chinese stock market has become riskier for U.S. investors to deploy.

"It's kind of breaking down," Dennis Davitt of Harvest Volatility Advisors said Thursday on CNBC's "Power Lunch." "It's just become less profitable to try to guess that game."

Read MoreIgnoring Chinese stocks? You're living in the past

In 2016, the Shanghai Composite has fallen 22 percent compared to the S&P 500's 4.5 percent drop. Davitt noted that the flow of funds out of the U.S. seem to be lagging behind more volatile markets such as China.

"We saw an enormous amount of sovereign wealth funds selling out of assets globally. It feels like they've stopped selling their U.S. assets and may be continuing to sell other countries' assets," he said.

The rally in crude oil and European bank stocks also helped support U.S. stocks on Thursday, said Larry McDonald, both of which have weighed heavily on markets this year. Crude oil settled up almost 3 percent, and the S&P 500 financial sector was the best-performing sector of the day.

"Those systemic issues have been relieved overnight and that is driving U.S. equities," the founder of Bear Traps Report said Thursday on "Power Lunch."

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




About Trading Nation

  • Trading Nation will offer enthusiast traders insights from a group of "Trader Coaches," a collection of expert CNBC Contributors who are well-versed in the daily challenges of trading. Each "Trader Coach" will have a different area of expertise, and will share their unique perspective on the markets, allowing new insights to emerge from this collaboration. Trading Nation is not simply about finding that next trade; it's a forum where enthusiast traders can hear and compare investing ideas in order to build confidence in their trading decisions.

@TradingNation




Host

"Power Lunch" Co-Anchor




Contributors

TradingAnalysis.com founder

Senior Director, Société Générale

Managing Director, Head of Technical Analysis, Evercore ISI

David Seaburg

Managing Director Head of Equity Sales Trading, Cowen and Company