Don't trust the rally in tech: Trader

After lagging the broader market in the beginning of the year, tech is hot once again.

Apple, Alphabet, Facebook, Amazon and Microsoft, which make up more than 35 percent of the tech-heavy Nasdaq 100, have surged a respective 14.5, 8.5, 13, 17 and 10 percent since the so-called Dimon bottom on Feb. 11 — the move sending the index surging more than 14 percent and outperforming the broader S&P 500 index. But according to one trader who relies heavily on the options market and technicals, one of these names is looking a little top-heavy.

"I think Alphabet has reached overbought conditions and it's set to move lower into earnings [next month]," Todd Gordon told CNBC's "Trading Nation" on Tuesday.

Looking at a chart of Alphabet, Gordon noted a "textbook" setup that indicated a corrective rally. "What we had was a rally, then a step back into a higher low," he explained. "But the key indicator that we are in a corrective rally is we got another push that was exactly the distance of the prior rally and that failed," said the founder of TradingAnalysis.com. "I think the downtrend is going to resume."

Read MoreQuiet times for stocks tend to end with big drops

To play for further declines, Gordon bought a put spread. Specifically, he purchased the April 730/725 put spread for 90 cents. This is a bearish strategy where a trader will buy a put and then sell a lower strike put of the same expiration to offset the cost. The goal is for the stock to fall to the strike you are short, or in this case $725 by mid-April. That's a 5 percent decline from the current strike price of just under $764.

"If we were to break above $770 then the premise of a corrective rally is invalid and we will want to get out of the trade," Gordon added.


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.

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