The Nasdaq 100 is within 1 percent of its all-time high, but according to one trader the charts are signaling a short-term selloff.
"The QQQ [the ETF that tracks the Nasdaq 100] has been stuck in a tight range with $106 on the low end and $111 on the high end," technical analyst Andrew Keene said Tuesday on CNBC's "Trading Nation."
The tech-heavy Nasdaq 100 has outperformed the broader market year to date, up nearly 7 percent while the S&P 500 is more than 2 percent higher over the same period. "We see the QQQ trading at the top of that range right now so I expect us to see a move to support at $106." That's a 4 percent drop from current levels.
But perhaps what makes Keene most bearish toward the QQQ is the recent performance of its biggest holding: Apple. "Apple has been in a short-term downtrend and they report earnings next week," said Keene, founder of Keene on the Market. Apple makes up 14 percent of the QQQ, followed by Microsoft at 7 percent and Amazon at 4 percent.
"With Apple being weak and the QQQ trading at the top of its trading range, I want to put on an options trade with a good risk-to-reward setup to play for a move lower," he added.
Specifically, Keene looked to purchase the August 109/106/103 put butterfly for 35 cents. This is a bearish strategy where a trader will buy a put, sell two lower strike puts and buy another lower strike put all at the same expiration. The goal of the trade is to target the middle strike, in this case $106.
"With a lot of stocks that make up the QQQ reporting earnings soon, this is a great way to play for the downside while defining my risk," said Keene.
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