logo

Fade the bounce in this sector: Technician

VIDEO1:4901:49
Trading Nation: Seeking safety

Crude oil extended gains into a three-day rally on Monday, soaring almost 9 percent and settling at more than $49. The move propelled energy stocks up 1 percent as every other sector in the S&P 500 fell.

But one technician says oil and energy stocks will likely continue their downward trend, which will also mean trouble for the broader market.

"At best, we think this is sideways [movement] with risk to the downside," Ari Wald of Oppenheimer said Monday on CNBC's "Power Lunch. "

According to Wald, the S&P energy sector ETF (XLE) has broken a 15-year uptrend in this year's tumble. He said that the absolute price and relative trend of crude oil remains weak, despite the bounce.

Last week, crude oil hit a multi-year low of $38 before bouncing back more than almost 30 percent from its low. Energy stocks have suffered this year as a result of falling oil prices. The S&P sector is down more than 17 percent year to date, despite a 10 percent rally in one week.

Read More Sell energy stocks on the recent pop: Trader

"We're worried that if the overall market does continue to crack here, it's going to be because of this sector. For that reason, we're staying away [from the XLE]," Wald said.

However, Boris Schlossberg of BK Asset Management said the energy pop should have value investors excited.

He said even if oil drops back down and hits $35, a level not seen since early 2009, investors could see long-term gains over the next two or three years as prices stabilize.

"This is exactly the kind of condition that value investors like. But you have to be a scaled-down buyer of all the oil equities," Schlossberg said Monday. "You really can't spend your capital all at once."

Want to be a part of the Trading Nation? If you'd like to call into our live Wednesday show, email your name, number, and a question to TradingNation@cnbc.com