Fade the bounce in this sector: Technician

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 MoreSell 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."

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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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