Where are stocks headed? Look to the yen.

The yen is in free fall—and that could be good news for U.S. stocks.

In the past month, the Japanese currency has tumbled around 10 percent versus the dollar as a combination of bad economic numbers out of Japan and a growing U.S. economy has traders snapping up dollars and tossing out yen. Japan's economy remains weak despite Prime Minister Shinzo Abe's fiscal stimulus efforts. Abe has called for snap elections to gain support for his policies, dubbed "Abenomics."

"As long as there is divergent monetary policy between Japan and the U.S., this is going to continue," said Gina Sanchez, founder Chantico Global. "We have a situation where we see continuing stimulus in Japan and we're looking for the potential for the first rate hike coming in 2015 in the U.S. Those just don't really support anything other than a weak yen."

(Read: Asian shares higher as Japan dissolves parliament)

The technicals also are signaling the dollar gaining against the yen, based on the chart work of Todd Gordon, founder of TradingAnalysis.com.

Looking at a 20-year chart of the dollar in yen terms, Gordon sees the greenback breaking out above a resistance that was in place since the late 1990s. "Dollar-yen has broken a long-term downtrend resistance around the 108 level," he said. "That is going to be viewed now as support. On the topside, we are looking to target the 2006 high at about 123."

That level—123 yen to the dollar—is particularly significant, according to Gordon. "Remember, 2006 is what really started the credit crisis decline," he said. Gordon notes that a return to 123 yen would place the dollar back to its pre-financial-crisis value.

This matters for U.S. investors as the dollar-yen exchange rate has been a fairly accurate forecaster of U.S. equities over the past few years. Gordon points out that the dollar's rise against the yen has coincided with a climb in the U.S. equities market.

(See: CNBC's Asia-Pacific news)

"Dollar-yen is actually very closely tracking the S&P 500," he said. "We have a U.S. Fed on the verge of a rate hike as the Bank of Japan is fully behind quantitative easing, weakening up the yen."

According to Gordon, that could be bullish for U.S. stocks.

"U.S. investors long equities want to continue to see the dollar strengthen against the yen," he added.

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