Expect a lot more pain for emerging markets: Trader

As markets around the world tumbled last week, one technician is seeing some very bearish signals for emerging markets and U.S. stocks.

Todd Gordon of TradingAnalysis.com attributed the recent plunge in the S&P 500 to turmoil in emerging markets. In turn, emerging markets have been driven by the decline in crude oil, he said.

Looking at the charts, Gordon noted that a few years ago, the S&P 500 Index exchange traded fund (SPY), the emerging markets ETF (EEM) and the U.S. Oil Fund (USO) had previously traded together before a drastic divergence took place.

"As the S&P 500 recovered and pushed higher, those emerging markets never recaptured those 2010 and 2011 highs. The divergence between emerging markets and the S&P started then," Gordon told CNBC's "Trading Nation."

With global stocks under pressure, "the S&P is now all of a sudden starting to take notice," he added.

Crude oil recently broke below $30, hitting its lowest level in 12 years. And as EEM breaks below critical support at its August 2015 lows, the S&P 500 may soon follow in its path, Gordon said.

The ETF has seen an even steeper selloff than U.S. stocks this year, falling more than 11 percent in the first two weeks of 2016. However, Gordon sees the emerging markets fund falling even farther, to the $20 level, which would be another 30 percent drop from where the ETF closed on Friday.

"Volatility should continue, and I see the emerging markets and commodities dropping," Gordon said.

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

Latest Special Reports




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.

On-Air Video

@TradingNation