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Want to know where stocks are going? Watch China

The yuan is serving as a key tell about where other assets are going, particularly since the Chinese currency suffered a sudden plunge in a swift depreciation in August, according to technical analyst Rich Ross of Evercore ISI.


For starters, the yuan drop presaged a similar-looking fall in U.S. equities.

"Yuan strength equals risk-on," meaning that it rises alongside risky assets like stocks, Ross said in a Monday "Trading Nation" segment. That's why the chart of CNY/USD (the inverse of how the currency pair is normally shown, so that it is the same chart flipped over) "looks just like the S&P 500."


The comparison also works in the near term, as the yuan recently rose as China announced stimulus, just as the S&P has been rising. In fact, Ross reports that both charts have broken their 50-day moving averages.

Since the inverse yuan chart looks like the S&P 500, it is no surprise that USD/CNY looks just like the chart of the CBOE Volatility Index, or the VIX, which generally records market fear.


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Since the yuan is a proxy for "risk-on" moves, it also should not be shocking that the chart of the yuan looks a good deal like the chart of crude oil.

"I think that this trend towards dollar weakness, yuan strength — that provides bullish implications for crude and risk factors all across the world!" Ross proclaimed.

The broad yuan read-through "makes a lot of sense in the sense that you think that the most important thing in the world right now is the Chinese economy. And if the yuan is a reflection of the strength or weakness in the Chinese economy, then of course all these things correlated make quite a lot of sense," said Boris Schlossberg, director of FX strategy with BK Asset Management, on "Trading Nation."

But more broadly, Schlossberg said that "we're now in a market where completely global factors matter to local markets, and I think that's a key takeaway that everyone should be paying attention to as well."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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