Trading Nation

Don't trust the rally in tech: Trader

Share
VIDEO3:1703:17
This mega-cap tech stock is about to fall

After lagging the broader market in the beginning of the year, 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 More Quiet 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.