Trading Nation

Sell these stocks on the market bounce: Strategist

More downside ahead for stocks?

Stocks fell slightly Friday morning, but the Dow Jones industrial average, and Nasdaq composite are all on track to end up for the week, thanks to a market bounce Wednesday and Thursday that led equities out of the recent major selloff.

And one strategist says investors should use the bounce as an opportunity to sell certain types of stocks.

"We've created really horrendous technical damage," Larry McDonald of Societe Generale said Thursday on CNBC's "Trading Nation." "I think you want to use rallies to lighten up on exposure to companies that have international exposure to China."

Chinese stocks have been punished lately, falling more than 30 percent in the last three months. And concerns about the country's economy have ramped up, weighing heavily on richly valued American markets.

Read More China central bank injects $22B into economy

For McDonald, any further upside should be used as a chance to reduce exposure to names and sectors that are strongly affected by the Chinese economy.

"The financials and the industrials really have the most risk to systemic issues around the world," McDonald said.

Meanwhile, Erin Gibbs of S&P Capital IQ says that companies with exceptionally high valuations look most vulnerable. Specifically, she would avoid shares of human resources services firm ADP.

"It's really overpriced compared to its industry, it's trading at about 24 times forward earnings, versus software and services, which is 19," Gibbs said Thursday on "Trading Nation." "They missed their earnings because of higher selling expenses and lower margins because they are facing such stiff competition."

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