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This chart signals trouble for big banks

It's been a turbulent year for the big banks, and one technician says things are about to get even tougher.

"Financials have been underperforming the broader market this year," Todd Gordon said Wednesday on CNBC's "Trading Nation." The financials are the worst performing sector in 2016, down 6 percent while the S&P 500 is up 1 percent. "While the S&P 500 has been making [year-to-date] highs, the financials have topped out," he added.

According to Gordon, the technicals are painting a grim picture for one the sector's most heavily weighted stocks. "I think Wells Fargo is ready for the next big leg down," said the founder of TradingAnalysis.com. Wells Fargo is the second-largest stock in the financial sector after Berkshire Hathaway. Shares of Wells Fargo have fallen 12 percent since early January. "I like to short weak stocks within weaker sectors relative to the market," he said.

Looking at a chart of Wells Fargo, Gordon noted that the stock has been butting up against key resistance around the $50. "It looks like we could go down and test the February lows [of around $44] especially after earnings on April 14," said Gordon.

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To make a bearish bet, Gordon purchased the April 47/46 put spread for 30 cents. This is a bet that Wells Fargo could fall as low as $46, more than 4 percent, in the next two weeks.

"If we are right in the direction, we make money. And if volatility increases like we believe it will — especially with an event like earnings — that will increase the value of our spread as well," Gordon said.

Wells Fargo is among the first of the big banks to kick off earnings season next week. The company is expected to report earnings of 98 cents per share on $21 billion in revenue, per data from FactSet.


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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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