This surging sector is about to turn: Technician

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."

Read MoreTraders: Here's what's driving the rally

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.

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.

Videos

Trades to Watch

Trader Bios

About

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

Connect