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 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.

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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."

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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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