Sell this stock on oil rally: Trader

Energy stocks got a boost Monday as crude oil rallied 2.5 percent. But while some may view the rally as a sign of renewed strength in the beaten sector, one trader warned the selling isn't over.

"I think oil is a sell on the rally," Andrew Keene said Monday on CNBC's "Trading Nation." And to get short the space, Keene eyed one oil name in particular: Schlumberger.

"We've seen a ton of [bearish options] activity in Schlumberger in the past couple of weeks," said Keene, founder of Keene on the Market. "We saw an institution buy a large lot of the September 75-strike puts for 80 cents," he added. That's a bearish bet that the stock will fall below $74.20, or 12 percent, by September expiration. The stock is currently trading above $84.

In addition to bearish options activity, Keene said the chart of Schlumberger shows little reason to buy in. "Schlumberger has been in a clear bear channel and I think we head lower," he said. Shares of the oilfield services company are down 9 percent in the past three months.

Read MoreDon't get too comfortable--rally may be brief

Keene noted the shares are weak relative to their shorter-term moving averages, highlighting the 20-day and the 50-day. The stock is currently testing its shorter-term 20-day moving average, and the last four times the stock has done so, it's resulted in a sharp selloff. "Schlumberger also hasn't been able to run through its 50-day moving average since June. This is one of those stocks that is a sell on the rally," he added.

The combination of poor technicals coupled with an increase in bearish options activity prompted Keene to buy puts of his own. He purchased the September 75-strike puts for 50 cents, which is a bearish bet that the stock will fall below $74.50 in a little over five weeks.

"This is a great opportunity to get short an oil name via buying puts," added Keene.

Wall Street consensus appears to be on the opposite side of Keene, however, as of the 41 analysts surveyed by FactSet, the average analyst price target for Schlumberger is $102.09 and the rating is "overweight."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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