Stocks sold off across the board Tuesday, with the S&P 500, and all falling more than 1 percent. And according to one trader, the market could face increased selling pressure over the next few weeks.
"As we come out of earnings season right here, I think the market has lost a lot of upside momentum," technical analyst Todd Gordon said on CNBC's "Trading Nation" on Tuesday. "We're starting to see a pickup in volatility and I think we're in for a bit of a correction."
Specifically, Gordon saw signs of trouble in the chart of the Russell 2000, which has lead the other indexes year-to-date, up 2.6 percent while the Dow and S&P 500 are up 2 percent and 1 percent respectively.
"If you look at the , the IWM, you see that we're heading toward trendline support at $121," said Gordon. "But I think we're going to violate that support and selloff to that 200-day moving average, which comes in at around $118." The IWM hasn't crossed below its 200-day moving average since December 2014.
So to play for a potential pullback, Gordon turned to the options market. Looking out to June expiration, Gordon purchased the 125/120 put spread for $2.04. In this strategy, a trader will buy a higher strike call and sell a lower strike call to offset the cost. So, his trade is profitable if the IWM is below $122.96 by June expiration, or slightly below where the IWM is currently trading.
"Look for a slight pullback in the market over the next couple of weeks," said Gordon.
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