Sell these stocks on the market bounce: Strategist

Stocks fell slightly Friday morning, but the Dow Jones industrial average, S&P 500 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 MoreChina 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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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 CNBCand 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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