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 "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.

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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