The hottest trade of the year could soon cool

The best performing sector of the S&P 500 could be in trouble.

Consumer discretionary is up 4 percent in 2015, topping all S&P sectors as investors have crowded into winners like Amazon and Starbucks. But according to some traders, the group is showing signs of strain, and it could lead to more losses for the market.

The ETF that tracks the sector, XLY, fell below its 200-day moving average on Wednesday. Todd Gordon of TradingAnalysis.com said this could mean that the sector is following in the footsteps of other outperforming groups that have taken a fall, including health care and technology.

"It's bad news that the XLY gave it up," Gordon said Wednesday on CNBC's "Trading Nation." "Without the XLY, I would say the broader downtrend continues."

The XLY has fallen 2 percent for the quarter. The SPDR healthcare ETF (XLV) and technology ETF (XLK) are also both down this quarter, 6 and 3 percent respectively.

Read MoreThe sneaky way that the Fed may be hurting stocks

Larry McDonald, managing director at Societe Generale, said the consumer discretionary sector could lose another 10 percent, as prices will continue to trend lower.

Although McDonald warned against jumping in head first, he said the sector could see a short-term boost from lower oil prices, which should translate into more money for consumers to spend.

"Oil has come down dramatically, so eventually that's going to work its way into the consumer as a beneficiary at some point," McDonald said Wednesday on "Trading Nation." "The lower oil stays down here, the better it is for the consumer."

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


Trades to Watch

Trader Bios


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.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more