This is a huge warning for stocks: Trader

This is a huge warning for stocks: Trader
This is a huge warning for stocks: Trader   

While investors and central banks around the world worry about deflation, one trader who relies heavily on the charts thinks there are actually some signs of inflation on the horizon, and that could spell trouble for stocks.

"The markets are in a very interesting period," said technical analyst Todd Gordon on Wednesday's "Live Trading Nation." "If you take a look at bonds selling off and commodities rallying, the charts are starting to look like there may be a bit of an inflation trade coming in here."

The TLT, the ETF that tracks long-dated treasury bonds, has sold off sharply in the past month and is trading at year-to-date lows. Meanwhile, commodities such as copper and crude oil are rallying, up 7 percent and 17 percent, respectively, in the same period. This as the dollar has begun to weaken. Taken all together, Gordon said investors could be overlooking a warning.

"I'm not exactly sure where it would be coming from, but the markets are certainly trading like we might have a little inflation coming," added Gordon, founder of TradingAnalysis.com.

Of course, there has been little in the way of official government data that would suggest inflation is a near-term threat. Traditional measures such as CPI or wages have been stagnant. But according to Gordon, those metrics are backwards looking.

"As always, we won't get the fundamental data until weeks or months after the fact to explain the movement," said Gordon. "For now, we have the hard right edge of the chart, which is often the best fundamental leading indicator out there."

Gordon advises staying clear of rate-sensitive sectors like utilities and REITs, which have been among this year's biggest losers.

Of course, a key measure of inflation comes this Friday with the jobs report, when we find out how many jobs were added last month.

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