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Bonds are due for a pullback--here's why: Trader

The bond market took a breather Thursday as equity investors began to shrug off China concerns and strong U.S. retail sales showed a September Fed rate hike could still be on the table. And according to one trader, bonds will continue to selloff in the near term.

"Bonds have made a pretty substantial move higher in this recent pocket of volatility in the stock market," Todd Gordon said Thursday on CNBC's "Trading Nation." The TLT, the ETF that tracks longer-dated bond yields, is up nearly 8 percent from its low on June 26, while the S&P 500 is down less than 1 percent in the same period. "I think the stock market is beginning to stabilize and that's going to set the bond market up for a little bit of a retracement." Bond prices and rates move inversely.

And looking at a chart of the TLT, Gordon noted that prior support has become a key resistance level around $125. "Up against that resistance level there's also a candle reversal pattern and that, to me, confirms the TLT could begin to change course," said the founder of TradingAnalysis.com.

Read MoreTreasury auctions $16 billion of 30-year bonds at a high yield of 2.880%

"The other indicator that I'm watching to let me know a pullback is upon us is the relative strength index," said Gordon. Technicians often look at the relative strength index to detect where a stock, or in this case ETF, is heading based on recent trading. "We have a pattern of three lower lows in the relative strength index as prices made three higher highs," he said. "That tells me there is a momentum divergence."

Gordon believes the TLT could drop as much as 5 percent in the near term. It was around $123 in late trading Thursday.

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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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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