China's markets are bouncing back this week, with the Shanghai composite index rising more than 4 percent in two days. However, one trader is betting that Chinese stocks will soon see another big swing, this time to the downside.
Todd Gordon of TradingAnalysis.com said the China large-cap ETF (FXI) is about to run into resistance at the $40 level, which could put a stop to its recent rally.
"The market has retraced off the lows after the big emerging markets and Chinese rout that we saw to the downside. I think the market has rallied back into a nice, corrective sell zone," Gordon said Friday on CNBC's "Trading Nation."
Although FXI fell slightly after the opening bell Friday, the ETF is on track to end the week up almost 5 percent.
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Gordon sees FXI going back to $36, a 7 percent drop from where it traded Friday morning.
"When $40 trades, I'm going to go ahead and get short the market," Gordon said, by selling the November 40-strike call and buying the November 42-strike, creating a call spread for 52 cents each.
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