Some of the year's worst-performing sectors have led the recent market rally, with energy, materials and industrials all up more than 10 percent for the quarter. However, one technician is betting that one of these sectors is about to take another tumble.
Todd Gordon of TradingAnalysis.com said Thursday that the rally in materials stocks is unsustainable. Looking at the materials sector ETF, XLB, Gordon is expecting a reversal of recent gains before the new year.
"We've seen quite a sharp reversal or rally in the last month here as the broader market has rallied, and that smells of short covering to me in a fundamentally weak sector. I think the downtrend is set to resume," he said on CNBC's "Trading Nation."
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XLB has risen more than 13 percent this quarter, but Gordon said this is a good time to bet against the ETF.
"That is not a good sign. All of a sudden the fundamentals of the materials sector didn't miraculously turn around," he said. "That's emotion driving that trade."
Targeting a 7 percent move down to $42, Gordon is buying the XLB December 44-strike put and, to offset the cost, selling the December 42-strike put for $0.50. The bearish bet is profitable if XLB falls below $43.50 and profits are capped at $42.
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